Kuok Group, a long-time shareholder of Tradewinds (M) Bhd may abstain from voting in the upcoming extraordinary general meeting (EGM) of the company to deliberate on a proposal to take over Padiberas Nasional Bhd (Bernas), sources say.
The abstention is a sign of protest by the group over the proposed acquisition of Bernas and a supposedly unattractive exit option on the table for its interest in Tradewinds, the source adds.

Kuok Group is the second largest shareholder of Tradewinds, with more than 23% equity interest, which is held via Grenfell Holdings Sdn Bhd (a 21.1% stake), Dalex Investment Ltd (6.2 million shares or a 2.1% stake) and Taloh Sdn Bhd (1.5 million shares or a 0.5% stake).

To recap, the EGM, which is slated to be held on Oct 28, is for Tradewinds’ proposed acquisition of Wang Tak Co Ltd’s and Gandingan Bersepadu Sdn Bhd’s equity interest in Bernas at RM2.08 a share, or a total of RM526 million. Wang Tak has a 31.5% stake in the company. Gandingan Bersepadu has a 72.2% stake in Budaya Generasi Sdn Bhd, which in turn controls 30.8% of Bernas.

While Wang Tak’s owners are connected to IGB Corp Bhd, Gandingan Bersepadu has a common shareholder with Tradewinds in businessman Tan Sri Syed Mokhtar Al-Bukhary. He has a 43% stake in Tradewinds and controls privately held Gandingan Bersepadu.

Support from Kuok Group is vital for Syed Mokhtar to see the deal through. As it is a related-party transaction, Syed Mokhtar and parties aligned with him — which control 43% of Tradewinds — cannot vote on the proposed transaction.

Assuming that Kuok Group abstains, the next biggest shareholders are mutual funds, led by Public Mutual. The Public Mutual group holds close to 9% in Tradewinds, while the rest is held by minority shareholders.

It is unclear if the proposal will go through if Kuok Group and others, possibly motivated by Kuok, abstain from voting. “But it won’t be plain sailing,” says a source.

Kuok Group’s dissatisfaction with the proposal probably stems from the huge borrowings that Tradewinds will have to incur to take over Bernas. Apart from the RM526 million that Tradewinds would pay Wang Tak and Gandingan Bersepadu for their interests in Bernas, the company would also have to fork out as much as RM453 million for a mandatory general offer.

At the moment, Tradewinds’ borrowings stand at RM1.27 billion. With the acquisition of Bernas, these will go up to about RM2.2 billion.

In an announcement two weeks ago, Tradewinds stated that the board had approved the proposal and ratified a share sale agreement between the company and Wang Tak. The Tradewinds board has two representatives from Kuok Group — Boo Yew Leng and Tan Gee Sooi. They are both non-independent, non-executive directors on the 12-man board.

Tradewinds’ chairman is Datuk Wira Syed Abdul Jabbar Syed Hassan, who is an associate of Syed Mokhtar. Also affliated to him and on the board are Syed Azmin Syed Nor (who is Syed Mokhtar’s brother), Bakry Hamzah, Khalid Sufat, Ooi Teik Huat and CEO Mohd Nazri Shariff.

Sources say Kuok Group was against the transaction and was supposed to exit from Tradewinds, with its interest bought over by Felda Holdings Bhd.

“But the offer from Felda is too low for Kuok Group to consider, which leaves them with little choice but to oppose the Bernas deal,” says a source.

It has been reported that Felda Holdings, a 49% unit of Felda Investment Cooperative and 51%-owned by the Federal Land Development Authority, is looking to take over Kuok Group’s equity interest in Tradewinds. This however was denied by Tradewinds after a query by Bursa Malaysia.

According to Tradewinds’ latest annual report, the top 30 shareholders control about 88.3% equity interest in the company.
Collectively, the three largest shareholders control more than 75% of Tradewinds. There are no other substantial shareholders besides the three.

It is also not clear whether some companies will be allowed to take part in the voting by the authorities.

Syed Mokhtar’s companies that hold equity in Tradewinds include Perspective Lane (30%), Kelana Ventures Sdn Bhd (8.9%) and Seaport Terminal (Johore) Sdn Bhd (4.1%). By totalling up their equity interest, Syed Azmin is deemed to have 43% interest in Tradewinds.

Meanwhile, another company possibly affiliated to Syed Mokhtar, Acara Kreatif Sdn Bhd, has 6.4 million shares or a 2.2% stake in Tradewinds.

According to the Companies Commission of Malaysia (CCM), the directors of Acara Kreatif are Datuk Sulaiman Ibrahim, Abdul Majid Md Yusof and Anuar Ramli. Its shareholders are Bakri, who has about 3% equity interest and is on the board of Tradewinds, and Puncak Titian Sdn Bhd, which holds the rest of the shares.

According to the CCM, Puncak Titian’s directors and shareholders are Anuar, who is also a director in Acara Kreatif, and Bahariah Bakar.

Anuar is a shareholder in Syed Mokhtar’s Johor-based water treatment company Aliran Ihsan Resources Bhd, holding some 22.7 million shares or 10.2% equity interest via Lindungan Sinar Sdn Bhd, which is also linked to Syed Mokhtar.

Whether Acara Kreatif is deemed a related party remains to be seen. Whatever the case may be, the proceedings at the upcoming EGM should be interesting.

This article appeared in The Edge Malaysia, Issue 778, Oct 26-Nov 1, 2009.