In the latest development in the takeover of UBG Bhd, the company said last week it had received a notice of the takeover offer by PetroSaudi International, Seychelles (PSI) and its owner and CEO, Sheikh Tarek Essam Ahmad Obaid, for RM2.50 per share.
Its subsidiaries Putrajaya Perdana Bhd (PPB) and Loh & Loh Corp Bhd also received notice of mandatory takeover offers from PSI at RM4.85 a share, bringing the total value of the deal to RM1.4 billlion.
It is no secret that UBG’s shareholders — Majestic Masterpiece Sdn Bhd (MMSB), Concordance Holdings Sdn Bhd (CHSB) and PPES Works (Sarawak) Sdn Bhd — are selling their stakes in the group, as they had accepted the offer by PSI in January.
However, as the 10th Sarawak state elections draw near, the proposed takeover looks to be a timely cash-raising exercise for its chief minister Tan Sri Abdul Taib Mahmud. Taib and his family collectively own a stake of more than 42% in Cahya Mata Sarawak Bhd (CMS), which in turn wholly owns Concordance and a 51% stake in PPES.
The disposal of its interest in UBG will net CMS RM102.7 million.
Industry observers say the corporate exercises are the latest in a string of deals that CMS has undertaken to extract cash from its investments.To recap, UBG, the financial services arm of CMS group and formerly known as Utama Banking Group Bhd, acquired a 32.13% stake in RHB banking group in 2003, resulting in a merger between RHB Bank and Bank Utama (Malaysia) Bhd.
In 2007, UBG sold its entire stake in RHB to the Employees Provident Fund (EPF) for RM2.25 billion and, with the proceeds, made a capital repayment of RM1.37 billion, leaving it with RM821.7 million and without a core business.
With the remaining proceeds, UBG acquired a 49.21% stake in PPB from Swan Symphony Sdn Bhd — a joint venture between Abu Dhabi-Kuwait-Malaysia Investment Corp (ADKM) and Autron Corp Ltd — for RM4.85 a share in February 2008. It also acquired a 37.56% stake in Loh & Loh from Binary Bestari Sdn Bhd at the same price.
As part of that exercise, UBG also acquired assets amounting to RM135 million from Sarawak SEDC and PPES Sdn Bhd. The acquisition price was deemed high, given that Swan Symphony had bought into PPB at RM2.90 a share while Binary Bestari had acquired its Loh & Loh stake from S P Setia Bhd for RM3.60 a share in November 2007.
The parties that had exited — Autron and S P Setia — would have been comfortable with the price considering the high valuations. PPB was injected at a price-to-earnings ratio of 16.6 times its 2007 earnings, while Loh & Loh was acquired at 20 times PER.
Nevertheless, industry observers say UBG effectively did not fork out extra cash to acquire the stakes, given that a large portion of the money flowed back into the company via a share issuance to MMSB.
(MMSB is a wholly owned unit of ADKM, which also owns Swan Symphony. MMSB subscribed for a 45.6% stake in UBG at RM2.50 a share, as part of the PPB and Loh & Loh buyout deal by UBG.)
Timely exitComing back to PSI’s proposed takeover of UBG, PPB and Loh & Loh, industry observers say the corporate exercises come at a time when Taib is raising cash to defend his state seat, which he has held for the past 29 years.
Even though he had indicated in 2006 that it would be his last term as chief minister, Taib has recently said he will defend his seat. He leads Parti Pesaka Bumiputera Bersatu (PBB), said to be the backbone of Barisan Nasional in Sarawak.
The ruling party is also said to be raising cash from the sale of a majority stake in Sarawak Plantation Bhd. It had been reported that Datuk Abdul Hamed Sepawi, said to be a close associate of the chief minister, is considering selling his 30% interest in the plantation company to a Sabah group.
The ruling party is also likely to receive a boost from Naim Holdings Bhd, which recently secured a US$770 million (RM2.42 billion) Petronas Carigali job in Sabah, says an industry observer.
PSI’s puzzling buyHowever, industry observers are perplexed as to why PSI, primarily an oil-and-gas outfit, would want to buy out UBG, PPB and Loh & Loh, which are mainly construction players.
One of the arguments is that the takeover would enable PSI to have a stronger foothold in the region, following its US$2.5 billion joint venture with 1Malaysia Development Bhd to look for oil-and-gas opportunities. PSI is a privately owned oil exploration and production company with offices in Saudi Arabia, the UK and Switzerland. It is owned by Sheikh Tarek Essam Ahmad Obaid and private investors.
PSI came into the picture last December when it offered to acquire all the shares in UBG held by MMSB, CHSB and PPES. In responses to The Edge in January, PSI said it particularly liked the niche that PPB and Loh & Loh had carved out for themselves in the construction industry.
Nevertheless, industry observers say PSI has a tough task making the best of its investment in UBG, given that the companies had failed to secure large construction projects, even with a stellar line-up of shareholders.
“Thus, it will be crucial for PSI to land some construction jobs in Sarawak, given the fewer number of large projects around,” an industry observer says.
While it remains to be seen whether PSI will be able to gain from this investment in the long run, what is certain for now is that the winner of the deal, apart from Autron and S P Setia, is Taib, who gets to exit with a fair amount of cash.
And with the state election looming ahead, the timing is perfect.
This article appeared in Corporate, The Edge Malaysia, Issue 826, Oct 4-10, 2010