his article first appeared in Corporate, The Edge Malaysia Weekly, on July 18 - 24, 2016.

NIRVANA Asia Ltd’s recent announcement that it will be taken private by CVC Capital Partners for US$1.1 billion has taken investors by surprise as the bereavement care company is just five months short of celebrating its second anniversary on the Hong Kong stock exchange (HKSE).

Based on Nirvana Asia’s circular to shareholders, the private equity firm is offering them HK$3 cash for each share, or 2.100076 preference shares and 0.031501 ordinary share in the entity that will privatise Nirvana Asia plus HK$1.37 cash for each Nirvana Asia share.

Nirvana Asia’s debut on the HKSE in 2014 was supposed to be its big comeback since its earlier privatisation in 2010 after being listed on Bursa Malaysia for a decade. This time round, the reasons for the move were no different from those of its first, namely limited average daily trading volumes and to give its shareholders a chance to monetise their investments.

Back then, Nirvana Asia (then NV Multi Corp Bhd) was privatised by its founder Tan Sri Kong Hon Kong’s private vehicle and Portwell Investment Ltd at 78 sen a share — a 21% premium to its last traded price before the deal was announced.

Some opine that it was just bad timing when Nirvana Asia made its debut on the HKSE. At the time, investors were jittery because of the worsening global market conditions caused by a sharp drop in crude oil prices.

“The equity market was undergoing a minor correction in December 2014 when Nirvana Asia was listed, so it declined 30% on the first day of trading,” Core Pacific-Yamaichi International (HK) Ltd research analyst Don Lau points out.

It did not help that the ringgit began its dramatic depreciation against the US dollar throughout 2015, a fund manager says. At the time of listing, the ringgit was trading at 3.4 against the greenback, but it hit 4.29 by the end of 2015. So far this year, it has recovered a little but is still far from its value back in December 2014. Last Thursday, it was hovering at 3.96.

“Malaysia was also facing political uncertainty and other domestic issues at the time. This didn’t give investors confidence, thus worsening the situation for the ringgit,” adds the fund manager.

It is worth noting that Nirvana Asia derives about 80% of its revenue from Malaysia, but it reports its earnings in US dollars, given its listing in Hong Kong. The ringgit has declined 25% against the greenback since Nirvana Asia’s listing.

In ringgit terms, Nirvana Asia has been doing well operationally, but in its reporting currency, its performance showed a decline.

Perhaps this is why Nirvana Asia’s share price has been muddling along since its debut on the HKSE.

According to Nirvana Asia’s 2015 annual report, its revenue rose 7.4% to RM580.4 million while its net profit jumped 2.9 times to RM339.22 million. Contract sales also went up 14.1% to RM771.68 million. Revenue and contract sales showed growth in ringgit terms across all markets it operates in — Thailand, Hong Kong, Malaysia, Singapore and Indonesia.

In its reporting currency, however, revenue declined 10% to US$148.57 million while net profit rose almost 2.5 times to US$86.84 million. Contract sales fell 4.4% to US$197.54 million.

“This is part of the currency risk that investors have to take when investing in a company listed in a foreign country but derives most of its revenue from its local market,” says the fund manager.

Throughout its 18 months on the HKSE, Nirvana Asia’s share price was languishing and the stock was unable to garner enough interest to push its price to HK$3 — its initial public offering (IPO) price. The closest it came to its IPO price was on April 22 last year when it hit HK$2.64.

However, when investors caught wind of the privatisation move, Nirvana Asia’s share price surged almost 30% to HK$2.82 between June 22 and July 14. Last Thursday, the company’s market capitalisation stood at HK$7.61 billion, giving it a price-earnings ratio (PER) of 11.29 times.

On the other hand, its China-based peer Fu Shou Yuan International Group Ltd — also listed on the HKSE — has seen its share price grow 44% since January last year. It has a market capitalisation of HK$11.29 billion and commands a PER of 33.86 times.

Lau opines that the vast difference in valuation between the two bereavement care providers could have been due to the volatility of the ringgit, given that most of Nirvana Asia’s revenue was generated in Malaysia. He adds that it could also be that Hong Kong investors are not familiar with the death care industry in Southeast Asia while Fu Shou Yuan is well known within the Chinese community in Hong Kong.

He also opines that Nirvana Asia’s privatisation price of HK$3 is fair in terms of valuation, as it is close to his 12-month target price of HK$2.97 per share.

Sadly, for the investors who bought the shares at the IPO price, they will not be making any capital gain from the privatisation offer. However, the company did pay a neat sum of 13 Hong Kong cents per share in dividends during its 18 months on the stock exchange.

Post-privatisation, Nirvana Asia founder Kong will continue in his role as CEO. He will hold a 47% stake in the entity that will privatise Nirvana Asia, making him and CVC Capital the two largest shareholders in Nirvana Asia. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.