This article first appeared in The Edge Malaysia Weekly on November 11, 2019 - November 17, 2019

SEVERAL parties are understood to be interested in buying a block of Boustead Holdings Bhd’s shareholding in Pharmaniaga Bhd, Malaysia’s largest publicly traded, integrated pharmaceutical group, sources say.

Boustead Holdings, which has not been performing well, has a 56.09% controlling stake in Pharmaniaga. It is not clear if Boustead Holdings plans to exit the company fully or merely sell a stake in it.

Boustead Holdings, in turn, is 59.45%-controlled by armed forces fund Lembaga Tabung Angkatan Tentera (LTAT).

In response to questions from The Edge on the possible sale of a stake in Pharmaniaga, Boustead Holdings says, “As an investment-holding company, Boustead Holdings holds multiple investments in various sectors of the Malaysian economy. The group is always on the lookout for ways to strengthen its diversified investment portfolio and extract the best value from its investments.

“Pharmaniaga is today a contributor to the group and continues to remain a viable asset at this juncture. Boustead Holdings is governed by exacting disclosure requirements. Should there be any pertinent announcements to be made, we will do so in accordance with disclosure requirements.”

One name that has cropped up as a potential buyer is Umno chief for Lembah Pantai and former federal territories and urban wellbeing minister Datuk Seri Raja Nong Chik Raja Zainal Abidin.

Raja Nong Chik’s family, via Raza Sdn Bhd, had a 19.1% stake in Pharmaniaga in the late 1990s, and he was a director of the company from 1999 until April 2009, when he was appointed a minister. In August 2005, Raza sold a 16% block in Pharmaniaga to UEM World Bhd for RM90 million.

In response to WhatsApp questions from The Edge asking if he was interested in Pharmaniaga, Raja Nong Chik says, “I am not eyeing Pharmaniaga because, firstly, I cannot afford it and, secondly, if I or my family buy Pharmaniaga, the chances of securing the concession tender for the company will diminish and [it will] be bad for the other shareholders.”

This statement by Raja Nong Chik clarifying the situation flies in the face of the many market rumours that he had met a certain power broker who is close to the current administration thrice, seeking to take control of Pharmaniaga.

Raja Nong Chik’s statement on Pharmaniaga’s concession stems from recent comments by Health Minister Datuk Seri Dr Dzulkefly Ahmad that the company’s government concession to distribute drugs and medical supplies will end on Nov 30 and that it will be replaced by a soon-to-be-implemented open tender.

However, Dzulkefly said late last week that Pharmaniaga will continue to hold the concession for anywhere between 25 months and five years, unless another company is appointed.

In 2011, Boustead Holdings forked out RM534 million or RM5.75 per share to acquire 86.81% equity interest in Pharmaniaga from Khazanah Nasional Bhd’s UEM Group Bhd as the 10-year concession to supply government hospitals was deemed lucrative.

At its close of RM2.26 last Friday, Pharmaniaga had an indicated gross dividend yield of 6.86%. Since 2012, its dividend payments have surpassed RM400 million or more than RM1.60 per share.

Pharmaniaga’s market capitalisation stood at RM590.38 million last Friday, which means Boustead Holdings’ 56.09% stake in it had a market value of RM331.14 million. Pegging a 20% premium to the controlling block would fetch Boustead Holdings some RM397.37 million.

It is noteworthy that prior to Dzulkefly’s statement on the expiration of Pharmaniaga’s concession, its shares were trading at the RM2.50 level, which means if an average share price is taken, Boustead Holdings may be able to collect more from its block of shares.

In its first six months ended June 30, Pharmaniaga registered a net profit of RM28.9 million on revenue of RM1.39 billion. In the corresponding period a year ago, it chalked up a net profit of RM22.98 million on revenue of RM1.2 billion.

As at June 30 this year, Pharmaniaga had deposits, cash and bank balances of RM38.31 million, short and long-term borrowings of RM703.28 million and RM179,000 respectively, and RM368.9 million in reserves.

Nevertheless, the company’s financials have been faltering. It registered a net profit of RM48.01 million in 1HFY2015, which means a decline of more than a third to 1HFY2019.

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