THE Perak State Development Corporation’s (PKNP) plan to take Perak Corp Bhd private seems to have reached a stalemate. The latter has yet to issue a circular to its shareholders on the proposed selective capital reduction, followed by selective capital repayment of RM3.90 per share, or RM183.7 million in total, some nine months after the proposal was announced in January.

Some minority shareholders, however, see the delay as a sign of a likely better offer. Corporate advisers say the revaluation of assets by independent advisers will reveal the company’s net worth.

On Jan 6, PKNP, together with Fast Continent Sdn Bhd, Cherry Blossom Sdn Bhd and Perak Equity Sdn Bhd, proposed to Perak Corp to undertake a selective capital reduction and repayment exercise, which will ultimately result in the controlling shareholders wholly owning the asset-rich company.

The company’s shares shot up from RM2.80 to around RM3.60 after news of the proposal broke. Before that in 2013, the counter doubled from RM1.20 to RM2.80.

PKNP and the parties acting in concert collectively own 52.9 million shares, or 52.9% equity interest, in Perak Corp.

Some of the minority shareholders are opposed to the proposal because they claim the offer price of RM3.90 apiece is substantially lower than the true worth of Perak Corp’s assets.

A group that calls itself the Perak Corp Minority Group (PCMG) says PKNP has taken cognisance of their opinions and that a possible revision of the existing offer is on the table.

“Minority shareholders are advised to wait for the offer document, which is expected to be available by next month. PKNP is aware of the shareholders’ request (for a better offer) in view of the previous annual general meeting during which we voiced our concerns,” says PCMG spokesperson Joseph Lam.

He adds that Sime Darby Bhd, which has 6.12% equity interest in Perak Corp through Sime Darby Property Bhd, is also not happy with the offer. “Sime Darby feels that the offer is too low and is trying to negotiate a better price with the Perak government.”

As at June 30, the value of Perak Corp’s total assets stood at RM794.66 million while its net asset value per share was RM5.30. The company has 141.53 acres in Kinta and 459 acres in Behrang, Selangor.

According to the company’s latest annual report, a substantial portion of its landbank has been classified as land held for property development and placed under its subsidiary PCB Development Sdn Bhd. As a result, the details of the parcels as well as their book values were not made available in the annual report.

Apart from its planned property launches, the group is also undertaking a joint venture with Australia’s Sanderson Pte Ltd to build an animation theme park in Ipoh at a cost of RM450 million.

Perak Corp’s port assets, comprising two waterbodies, a wharf and warehouses, carry a net book value exceeding RM80 million and have 99-year leases. Its Lekir Bulk Terminal has a specialised terminal to offload six million tonnes of coal, which is consumed by Tenaga Nasional Bhd’s 2,100mw Manjung power plant. This gives the company long-term earnings visibility.

In its financial year ended Dec 31, 2013 (FY2013), Perak Corp posted a net profit of RM26.47 million, or 26.47 sen per share, which was down 30% from RM38.05 million, or 38.06 sen per share, in the year before. Revenue declined to RM133.98 million from RM157.38 million previously. In an earnings announcement, the group attributed the decline in profit to higher operating expenses at its business units.

Currently, most of Perak Corp’s revenue is derived from its port operations, although in 2Q2014, cargo throughput at the Lekir Bulk Terminal decreased at a worrying rate of 19% year on year. For the quarter, the segment reported a pre-tax profit of RM7.6 million, down 37% from 2Q2013’s RM12.08 million.

In the meantime, after nearly nine months, there have been hardly any updates on the proposed selective capital reduction and repayment exercise. In its announcement in January, Perak Corp had said that the exercise was to be completed by the third quarter of this year, barring unforeseen circumstances.

Normally, an offer is followed by an independent adviser’s report and an extraordinary general meeting (EGM) for minority shareholders to cast their votes. In this instance, the privatisation exercise is also conditional upon several caveats, including the grant of an order of the High Court as well as the approval of relevant government and regulatory authorities, where applicable.

The dissenting minority shareholders may garner enough votes to block the privatisation proposal at an EGM.

This group and Sime Darby collectively hold more than 12% of Perak Corp, which makes them a strong voting bloc to oppose the deal.

To be approved, the privatisation requires at least 75% in value of votes supporting the deal and no more than 10% of votes cast against the resolution from the minority shareholding of 47.1 million shares.  

While any potential revision is not expected to match Perak Corp’s net asset value per share of RM5.14 as at Dec 31, 2013, PCMG has indicated that the shareholders are willing to accept a compromise.

This is because the company does not have the financial resources to undertake the selective capital reduction at a much higher price, unless it starts selling assets for cash.

As at June 30 this year, the company’s cash and bank balances stood at RM134.03 million. In a selective capital reduction, funding for the deal typically comes from cash reserves or a loan taken by the acquirers or a combination of the two.

“Given Perak Corp’s current financial position, the minority shareholders are willing to consider an offer price of RM4.50. This can be made via an additional 60 sen special dividend or an outright revision of the original offer price,” says Lam, adding that additional funding can be secured through the disposal of Perak Corp’s land to unlock value for the shareholders.

Clearly, the company’s future lies in property development as it underlined in its proposed selective capital reduction announcement. The property market in Perak is starting to gain traction along with price appreciation in the neighbouring states of Selangor and Penang.

While landbank procurement is not a problem, given the company’s close ties with the state government, it is short of the working capital required to undertake new launches. For example, its 1,500-acre township development in Bandar Meru Raya requires substantial investment in infrastructure to stimulate growth.

The potential gross development value of its vast landbank could be massive if and when the property market in Perak heats up, which would surely value Perak Corp much higher than its current market capitalisation of RM358 million.

For this reason, the company’s minority shareholders remain adamant about getting a revised exit offer that is a fairer reflection of the company’s value as they would no longer have exposure to the company if the proposed selective capital repayment takes place.

This article first appeared in The Edge Malaysia Weekly, on October 06 - 12, 2014.

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