PetroSaudi to raise UBG stake

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KUALA LUMPUR: Saudi Arabia’s PetroSaudi International (PSI) will be about a million shares short of triggering a compulsory sale by UBG Bhd shareholders should all its acquisition proposals go through and raise its stake to 89.9%.

The stake would cost a total of RM1.12 billion at RM2.50 per UBG share, which will also be the price in a general offer (GO).

PSI announced in a statement yesterday that it was set to acquire another 52.62% stake in UBG from Majestic Masterpiece Sdn Bhd (MMSB), a wholly owned subsidiary of the Abu Dhabi-Kuwait-Malaysia Investment Corp (ADKMIC). This would raise its stake in UBG to 89.9%.

MMSB confirmed the proposal yesterday in a separate statement, adding that its acceptance of the offer was now subject to shareholder approval.

The MMSB deal follows an announcement last Friday that PSI would purchase 37.21% in UBG from Concordance Holdings Sdn Bhd (CHSB) and PPES Works (Sarawak) Sdn Bhd, both units of Cahya Mata Sarawak Bhd (CMS). CHSB and PPES own 28.29% and 8.92% of UBG, respectively. Based on CMS’ shareholding in its respective vehicles, it stands to receive RM410.8 million from the sale.

In a research note yesterday, Maybank Investment Bank (Maybank IB) said PSI’s offer price to CHSB and PPES was the same as the general offer price for UBG’s shares during its corporate exercise in 2008, when CMS ended up with its 37.2% interest and ADKMIC with its 52.6%.

PetroSaudi is a privately held firm incorporated in the Seychelles in 2000 by Tarek Essam Ahmad Obaid and other private investors. According to foreign news reports, PetroSaudi is chaired by Prince Turki bin Abdullah bin Abdulaziz Al Saud, the son of the current ruler of Saudi Arabia, who also co-founded PetroSaudi with Obaid.

The company made its first big splash in Malaysia when it started an investment fund with 1Malaysia Development Bhd (1MDB), a strategic investment company owned by the federal government, last September.

The two partners agreed to cooperate on a US$2.5 billion (RM8.35 billion) investment fund, with commitments of US$1 billion and US$1.5 billion, respectively. The stated goal of the joint venture (JV) was to “spearhead the flow of foreign direct investments (FDI) from the Middle East as well as make strategic investments in high-impact projects in Malaysia”.

The JV would subsequently invest in the oil and gas, real estate and renewable energy sectors, according to a press release issued last September.

It is not immediately clear from the Bursa Malaysia announcements whether the UBG share purchase by PetroSaudi involves 1MDB as the acquisition of UBG fits the stated goals of the JV. Efforts to clarify the matter with 1MDB at its event yesterday failed as the company declined to meet the press.

Meanwhile, MMSB said it had begun considering several offers for its stake in UBG following the impact of the financial crisis on construction projects in the Middle East. It said in a press release that PSI’s offer represented the best option for its stakeholders.

It also said slowing construction jobs in the Middle East had prompted ADKMIC to re-evaluate its involvement in the sector, and was looking to deploy its capital in other growth sectors in Malaysia.

There is a further connection between the purchase of UBG shares by PSI and 1MDB in form of Low Taek Jho, a Malaysian deal-maker who was linked to 1MDB when it was still known as the Terengganu Investment Authority (TIA). Low sits on the board of UBG, and is a representative for both MMSB and ADKMIC.

Partners in ADKMIC include Malaysian Tengku Datuk Ahmad Faisal Tengku Ibrahim, Yousif Mana S Al Otaiba from Abu Dhabi and Sheikh Sabah Mohd S Al-Sabah from Kuwait.

As for the other block of UBG shares, CMS said it would use the sale proceeds for projects in the Sarawak Corridor of Renewable Energy and an aluminium smelter in Similajau, Sarawak. PSI, however, has yet to state its intentions for UBG, apart from privatising it in the near future.

“PSI will likely use UBG’s construction units to further its high-impact energy investments in Malaysia, especially in Sarawak, under its US$2.5 billion partnership with 1Malaysia Development Bhd.

“This is positive for foreign direct investment flows, but negative for equity investors who will have fewer options to participate in Sarawak’s development potential,” Maybank IB said.

PSI’s acquisition of UBG will also trigger GOs at UBG subsidiaries Loh and Loh Corp Bhd and Putrajaya Perdana Bhd. UBG owns 80.3% and 85.9% of Loh and Loh and Putrajaya Perdana, respectively.

“As PSI’s takeover is above the 33% shareholding threshold, it will trigger a GO for the remaining shares in UBG. Under the code on takeovers and mergers, PSI will also have to extend a GO to the shareholders of Loh & Loh and Putrajaya Perdana.

“The question is, what would be the offer prices? Since PSI’s offer price for UBG is the same as the GO price two years ago, one can assume it could be the same for Loh & Loh and Putrajaya Perdana’s shares, at RM4.85 apiece,” Maybank IB said.

UBG closed at RM2.45 yesterday, up six sen from last Friday. PSI’s offer price represents a 2% premium over the closing price and 20 times its consensus earnings estimates for FY2010.

Last Friday, Loh & Loh shed 28 sen to RM4.40 while Putrajaya Perdana was not traded at RM2.90. Yesterday, both counters were not traded.

This article appeared in The Edge Financial Daily, January 12, 2010.