Trade Wise: MUI in limelight for asset sale plan, Khoo’s divorce

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WHILE THE billion-ringgit divorce case of business tycoon Tan Sri Khoo Kay Peng continues to make the headlines in the Malaysian and UK tabloids, investors are fascinated by the news that his asset-rich flagship Malayan United Industries Bhd (MUI) is looking at the disposal of assets to unlock value.

Trading in MUI’s shares was suspended for almost four working days (from Nov 20 to 25) before the group announced to Bursa Malaysia that it is engaged in “serious discussions” with a potential party to explore the possibilities of disposing of “certain substantial assets” to realise their value.

MUI didn’t elaborate which assets would be involved or how substantial they would be. However, considering the group’s usually jittery response to speculation of asset disposal and the almost four-day suspension of its shares, investors see the announcement as significant.

MUI was up 17.4% from 23 sen on Nov 23 to 27 sen last Friday, giving the company a market capitalisation of RM747.8 million.  

The flagship of Khoo, MUI owns assets with a potential market value that is said to be far greater than its enterprise value (EV) of RM1.34 billion (its market capitalisation plus net borrowings of RM588.3 million as at Sept 30, 2014), according to market observers who follow the stock.

Of the assets, the jewel of the crown appears to be Corus Hotel Hyde Park at Lancaster Gate, London, which reportedly could fetch a market value of £200 million (RM1.06 billion). The 390-room hotel that MUI had acquired in 2001 sits on 21,635 sq ft of freehold land and is carried at a net book value (NBV) of only RM257.5 million in the company’s balance sheet.

At £200 million, Corus Hotel Hyde Park would be valued at £513,000 per room. By comparison, the 447-room InterContinental Park Lane, situated on the other side of Hyde Park, was transacted last year at £301.5 million or a price per room of about £675,000.

Back home, MUI owns the refurbished Corus Hotel in Jalan Ampang, Kuala Lumpur, which sits on a 78,458 sq ft plot opposite the Petronas Twin Towers. This property is carried at an NBV of only RM60.5 million or RM771 psf.

MUI also has two plots of freehold land (with buildings on them now) in Jalan Ampang. One measures 38,104 sq ft and is carried at RM8.1 million (RM213 psf) while the other is 32,895 sq ft and carried at RM24.6 million or RM750 psf. The first plot was acquired in 1991 and the second in 2007.

James Wong, managing director of registered property valuer VPC Alliance (KL) Sdn Bhd, tells The Edge that Corus Hotel Kuala Lumpur can fetch indicative values of RM212 million or RM2,700 psf and the two plots RM1,800 psf each, which translates into a total market value of RM127.8 million.

Apart from its notable property assets, MUI owns stakes in two major retailers as well — 98.22% of local player Metrojaya Bhd and 35.17% of London-listed Laura Ashley Holdings Plc. While it is difficult to ascertain the value of Metrojaya as it is no longer listed, MUI’s stake in Laura Ashley is worth £70.84 million (RM375.8 million).

MUI also holds equity interest in MUI Properties Bhd (74.32% valued at RM206.5 million), Pan Malaysia Corp Bhd (66.51%, RM108.4 million) and Pan Malaysia Holdings Bhd (69.19%, RM77.1 million). All are listed on Bursa Malaysia.

Despite its rich assets, MUI reported a net loss of RM3.08 million or 0.1 sen a share in the nine months ended Sept 30, 2014, on revenue of RM441.19 million. The reasons for the dismal results include its high cost of borrowings (RM36.33 million) and relatively low yields from its core businesses in the hotel and retail industries.

According to the company’s 2013 annual report, Corus Hotel Hyde Park reported a pre-tax profit of £3.5 million (RM18.54 million) in FY2013 while Corus Hotel Kuala Lumpur delivered RM15 million. Considering what these two assets can fetch on the market through disposal or redevelopment — more so in the case of the Jalan Ampang property — the returns that MUI has been deriving from them are deemed low.

“London property prices have gone up quite a lot. If I could get rid of these assets at a good price, I would … As for the retail business, it is still generating stable income and I’d keep it,” says a businessman, adding that MUI needs to realise the value of its assets or make them work harder and, at the same time, trim its debt.

Indeed, there was news in the UK in July that MUI had appointed a real estate agent to scout around for a buyer for Corus Hotel Hyde Park. However, this was denied by MUI when reported by The Edge Financial Daily on Sept 29, quoting the UK article.

Whatever MUI’s plan may be, its growth potential has attracted savvy investor Datuk Dr Yu Kuan Chon.

As per The Edge Financial Daily’s Sept 29 report, the company’s 2013 annual report — published on June 4, 2014 — listed Yu as one of its top 30 shareholders with 44.63 million shares or a 1.53% stake as at April 28, 2014. Yu’s name did not appear anywhere in MUI’s 2012 annual report, which means he must have purchased the shares between the second half of 2013 and early this year.

The chairman of YNH Property Bhd, Yu is regarded as a shrewd businessman. He managed to block an attempt by tycoon Tan Sri Quek Leng Chan to privatise Hong Leong Capital Bhd (HLCap) last year as he believed the company’s value was higher than what Quek had offered.

Since April, however, it is not known whether Yu has purchased more shares in MUI or sold any.

Coming back to MUI’s announcement to Bursa on Nov 25, the group says it will make a full disclosure of the transaction once discussions are completed and an agreement has been entered into. It, however, has reminded its shareholders that there is no certainty on the outcome of the discussions.

“What I suspect is that the buyer and seller (MUI) thought they could come to an agreement last Tuesday. But come Tuesday, they had not come to a conclusion while the stock had to resume trading,” says an observer.

However, if one looks at it positively — that MUI is thinking of disposing of its substantial assets to realise their value — it puts the group on a path to enhancing shareholder value.

Meanwhile, last Friday’s news that the Kuala Lumpur High Court had ruled that it had the jurisdiction to hear Khoo’s billion-ringgit divorce dispute against his estranged wife, former beauty queen Pauline Chai, will continue to put the tycoon under the spotlight.

Chai has sought for the divorce case to be heard in the UK, where the sums paid out can be extraordinary. According to British media, she is expected to demand half of Khoo’s estimated RM2.3 billion (£440 million) fortune. Considering the amount, it’s hard not to think that the divorce case will have an indirect impact on MUI, in which Khoo owns 47.67%.

According to a report by The Malaysian Insider, Judge Yeoh Wee Siam said Chai’s domicile was in Malaysia and so the Malaysian court could hear and determine the couple’s divorce case. “The common law principle that the wife’s domicile is dependent on her husband continues to apply in Malaysia,” she said in allowing Khoo’s application.

This article first appeared in The Edge Malaysia Weekly, on December 1 - 7, 2014.