A MINORITY SHAREHOLDER of Perak Corp Bhd has written to the Securities Commission Malaysia (SC) seeking the market regulator’s advice on what he perceives to be a “breach of the Capital Markets and Services Act 2007”. His allegations are based on certain events that transpired in Perak Corp’s handling of Tenaga Nasional Bhd’s takeover offer for the former’s 15.7% stake in Integrax Bhd.

In a letter dated March 12 sighted by The Edge, minority shareholder Teh Kian Lang alleges that there is “a conflict of interest” on the part of Datuk Aminuddin Md Desa, CEO of Perak Corp, in “publicly proposing to Tenaga to revise its offer price for Integrax shares from RM2.75 to RM3.25”, and is seeking a ruling from the SC.

Teh also questions the advice of Affin Hwang Investment Bank Bhd, which was hired by Perak Corp to evaluate and provide a recommendation on the deal, because the investment bank pegged an indicative price of between RM2.98 and RM3.25 per Integrax share, which Aminuddin relied on in his proposal to Tenaga to revise the offer.

Teh’s contention could be that Affin Hwang’s advice contradicted that of M&A Securities — the independent adviser to Integrax’s shareholders (including Perak Corp) — recommending that the shareholders reject the deal at RM3.25 per share. M&A claimed that Integrax’s revised net asset value (RNAV) of RM3.60 to RM3.66 per share was still higher than Tenaga’s revised offer price.

To recap, late last month, Aminuddin publicly said that Perak Corp (fundamental: 1.9; valuation: 1.2) would be willing to table Tenaga’s offer to its shareholders if the utility company offered it RM3.25 per share as opposed to an earlier offer of RM2.75 apiece.

Tenaga promptly upped its bid to RM3.25 per share, increasing the offer as per Aminuddin’s call. As at last Thursday, the utility company owned about 23.1% of Integrax (fundamental: 1.65; valuation: 1.2) and was its second largest shareholder after Amin Halim Rasip, who owned 24.6% of the port operator.

In his letter, Teh alleges that the bargaining between Aminuddin and the utility company “may be in breach of Sec. 217(5)(d) of the Capital Markets and Services Act 2007”, which requires that in making any recommendations and exercising powers, the “directors of the offeree and acquirer shall act in good faith … and that minority shareholders are not subject to oppression or disadvantaged by the treatment and conduct of the directors of the offeree or the acquirer”.

In a phone conversation with The Edge, Teh says he is the spokesperson for about six shareholders who hold about 5% of Perak Corp.

Perak Corp is 52.9%-controlled by the state via Perbadanan Kemajuan Negeri Perak (PKNP). The only other substantial shareholder is Sime Darby Bhd with a 6.1% stake while KAF Fund Management Sdn Bhd holds 4.4% equity interest on behalf of KAF Seagroatt & Campbell Bhd.

At an EGM to be held on March 27, Perak Corp’s shareholders will either approve or reject the sale of the Integrax stake to Tenaga. The company will need a simple majority to push the sale through.

According to Teh, the independent directors of Perak Corp have to act in the best interests of the shareholders. “They (the independent directors) have to think of all the shareholders and not just safeguard the interests of the single largest shareholder,” he says, referring to PKNP.

In his letter to the SC, Teh highlights that Perak Corp has accepted an offer (which is still subject to the outcome of the March 27 EGM) that is below that recommended by independent valuer M&A Securities, which has pegged an RNAV of RM3.60 to RM3.66 to Integrax’s shares after taking into account the latter’s results for its financial year ended Dec 31, 2014.

Both M&A Securities and Integrax’s board had deemed the RM3.25 offer by Tenaga reasonable only because there was no competing offer and based on the lack of trading activity in Integrax’s stock. Still, they felt the revised offer was not fair because it was as much as 11% lower than Integrax’s RNAV.

“Perak Corp’s recommendation and acceptance of a price below that given by our independent adviser [M&A Securities] has undermined the [Integrax] board’s advice and is also detrimental to the minority shareholders of Integrax who are now left in doubt as to the accuracy and reliability of the valuation by our independent adviser [M&A Securities],” Teh says in his letter to the SC.

He also asks the SC whether Aminuddin should cease to take part in deliberations on the offer for Integrax or be suspended by reason of “his conflicting position” by virtue of being a member of both the boards of Perak Corp and Integrax, which hold contrary views as to the true value of Integrax’s shares.

As for Affin Hwang, Teh says “the board of directors [of Perak Corp] are not entitled to rely on any advice given by Affin Hwang to excuse them from a breach of duties, including their fiduciary duties to the company”.

In a circular to Perak Corp’s shareholders, Affin Hwang says the firm and its parent Affin Bank Bhd are among the financial institutions providing part of the syndicated loan facility of up to RM280 million to Animation Theme Park Sdn Bhd — a 49% unit of Perak Corp.

Animation Theme Park is the joint-venture partner of Sanderson Project Development (M) Sdn Bhd, which is slated to develop and operate a movie animation park studio. Affin Hwang says it is the lead arranger, facility agent and security agent for the syndicated loan.

However, it also says that based on its audited financial statements as at Dec 31, 2013, its and Affin Bank’s exposure to Perak Corp is less than 5% of its total securities, loans, advances and financing.

Other than Teh, the move by Perak Corp to sell its Integrax stake to Tenaga seems to have also rattled the latter’s largest shareholder Amin. He has been nibbling at Integrax’s shares and just made an offer to buy a 5% stake in the company from Perak Corp at RM3.50 per share — 25 sen more than Tenaga’s offer.

Amin has said that Tenaga’s offer grossly undervalues Integrax.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on March 23 - 29, 2015.

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