Take Khazanah offer, MAS advises minority shareholders

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KUALA LUMPUR: Beleaguered Malaysian Airline System Bhd (MAS) has called on its minority shareholders to accept the takeover offer made by Khazanah Nasional Bhd to pave the way for the privatisation of the airline, saying that it is “fair and reasonable” and “in the best interest of the entitled shareholders”.

In a circular to its shareholders filed with Bursa Malaysia yesterday, MAS board of directors recommended that shareholders “vote in favour” of the offer after it considered its rationale, justification and benefits, with the advice of its independent adviser, AmInvestment Bank Bhd.

Khazanah, which holds a 60.37% stake in MAS, in August proposed to buy the remaining stake it does not own in the carrier for 27 sen a piece or RM1.38 billion in total. It is the first step of what is seen as a final bid by the sovereign wealth fund to take the ailing carrier private to revive it.

Khazanah’s buyout will be effected via a selective capital reduction exercise that will reduce MAS’ issued and paid-up share capital by cancelling all MAS shares held by minority shareholders and reducing the share premium account of MAS by RM870.13 million from RM1.735 billion to RM865.59 million.

Meanwhile, AmInvestment, in the same circular, said the offer price of 27 sen represents a premium of between 6.4 sen and 12.6 sen to the fair value of the company’s share of between 14.4 sen and 20.6 sen per share.

It said Khazanah’s offer provides an opportunity to entitled shareholders to realise their investments “at a premium over the past six months’ historical volume weighted average market price of MAS shares”.

The bank expects MAS to continue to incur losses from its airline operations, given the challenging environment in the aviation sector.

“Over the past three audited financial years, the airline operations registered aggregate losses before interest and taxation of RM3.83 billion,” it said.

It also foresees MAS to continue to lose money from its cargo services and the engineering and maintenance division.

“Furthermore, MAS registered negative cash flows from operating activities in three consecutive financial years [from FY11 to FY13],” it said, and the management said this is likely to continue until FY16.

Going forward, the bank said the outlook for MAS will remain challenging and its weak financial performance is likely to continue and worsen from the impact of its double tragedies of flights MH370 and MH17.

“In addition, the high gearing ratio of 3.7 times as at June 30, 2014, is also likely to pose challenges for MAS to raise additional funds via debt financing to support its operations and business.”

The bank said in order to set MAS on a more sustainable and profitable path, an extensive review of all major aspects needs to be followed by an implementation of a comprehensive restructuring plan.

An extraordinary general meeting will be held on Nov 6 for minority shareholders to vote on the offer. MAS counter closed half a sen higher to 25.5 sen with 25.59 million shares done, giving it a market capitalisation of RM4.26 billion.

This article first appeared in The Edge Financial Daily, on October 16, 2014.