UMNO won big on its investment in KUB Malaysia Bhd following the disposal of a 31.99% stake to JAG Capital Holdings Sdn Bhd, an investment vehicle of former second finance minister Datuk Seri Johari Abdul Ghani.
Based on filings with Bursa Malaysia, JAG Capital acquired 178.1 million shares in KUB Malaysia from Anchorscape Sdn Bhd at 68 sen apiece in a direct transaction. The price was at a 72.2% premium to KUB Malaysia’s closing price of 39.5 sen that day, translating into RM121.1 million cash for Anchorscape.
A company search shows that Anchorscape is a unit of Gaya Edisi Sdn Bhd, which, ultimately, is owned by Umno-linked investment vehicle, Temasek Padu Sdn Bhd.
Filings with Bursa show that Anchorscape had acquired 125.5 million shares in KUB Malaysia at only 35 sen each on June 2017 in a call option agreement with the Minister of Finance (Inc). At the time, KUB Malaysia was trading at 55 sen to 56 sen, indicating a discount of about 36%.
Gaya Edisi then acquired the whole of Anchorscape for RM2 per share and transferred its existing holding of 164.8 million KUB Malaysia shares to Anchorscape, making it KUB Malaysia’s single largest shareholder with a 52.2% stake at the time.
While there is no data on the cost of Gaya Edisi’s investment in KUB Malaysia as it dates back to 2005, Bloomberg figures show that the volume weighted average price (VWAP) at the time was 39 sen per share. Filings with Bursa also show that Gaya Edisi acquired the shares from Sumber Serata Sdn Bhd, an investment vehicle owned by Umno politician Datuk Hassan Harun.
Based on the call option cost as well as the VWAP price at the time, the Umno-linked vehicle’s investment cost for the entire 290.3 million shares is about RM108.2 million. This translates into a gain on disposal of about RM12.9 million for Anchorscape while maintaining its 20.2% stake in KUB Malaysia to earn potentially higher returns under a new shareholder with a good track record.
Johari tells The Edge that his acquisition of the KUB Malaysia stake is a private investment and that the premium is not as steep as it looks, considering the group’s assets and potential earnings.
“If you look at the company’s net tangible assets, it is about 60 sen per share. So, if we compare it with the 68 sen per share that I paid, the premium is not that huge, considering the volume that we are acquiring and the two board seats that come with the block of shares,” he explains.
Johari acknowledges that KUB Malaysia’s plantation division is under stress in view of the weak crude palm oil prices but he expects the division to turn around as CPO recovers.
As he rightly points out, the group’s prospects are bright, given its well-diversified business interests, namely energy, plantations, ICT and power. Its largest business is energy, followed by agriculture and ICT.
KUB Malaysia’s energy business involves the import, bottling, marketing and distribution of liquefied petroleum gas under the brand name Solar Gas. Its LPG supply comes mainly from the Middle East to its terminal at Westports in Port Klang, where it is stored, bottled and delivered to customers.
Another major contributor to revenue is its plantation business. The group’s annual report for its financial year ended Dec 31, 2017 (FY2017) shows that it has four oil palm plantations in Kluang in Johor and Mukah in Sarawak that add up to 7,332ha. The plantation in Mukah also houses a 45 tonnes per hour palm oil mill.
The group, however, slipped into the red in its most recent quarter and analysts have cautioned that it will take some time for it to turn around.
The challenges faced by KUB Malaysia, JAG Capital’s entry and Johari’s affiliation with an opposition political party may have given investors the jitters but the acquisition still triggered trading interest.
Last Monday, trading volume hit 23.7 million — about 10 times the one-year average volume of 2.6 million. Part of the reason could be Johari’s proven track record, especially his investment in CI Holdings Bhd, which is involved in the manufacture and packing of all types of edible oils and the manufacture and trading of water taps and other plumbing accessories.
Johari has been a substantial shareholder of CI Holdings via JAG Capital since 2005 and those who invested in CI Holdings at the time would have seen a whopping total return of 1,491.9% or about 23.4% annually.
Coming back to KUB Malaysia, it might be too early for investors to count their chickens but Anchorscape is clearly reaping the rewards of having bought it at a discount from MoF about two years ago.