All eyes on MMC Corp BY GURMEET KAUR AND WONG WEI-SHEN

by **Cals** Sun 17 Nov 2013, 21:32

Published: Saturday November 16, 2013 MYT 12:00:00 AM
Updated: Saturday November 16, 2013 MYT 8:13:17 AM
All eyes on MMC Corp
BY GURMEET KAUR AND WONG WEI-SHEN

MMC Corp Bhd is increasingly being watched by investors as market talks continue to focus on the possibility of more corporate exercises at the asset-rich group.
Already, MMC has plans to float Malakoff Corp Bhd, which is expected next year according to news reports. Although MMC had allowed the approvals to float Malakoff to lapse this year, MMC has maintained the listing is still in the pipeline with a target to list by April or May next year. A reason for the deferment was due to upgrading works at its Tanjung Bin power plant in Johor.
Aside from that, industry players are speculating that MMC could be looking to spin off its ports namely, Port of Tanjung Pelepas (PTP) and Johor Port. MMC owns 70% of PTP and wholly-owns Johor Port.
Then there’s the property side of things – MMC has valuable land bank in Johor made up of around 2,600 acres of industrial land around the Senai Airport.
Analysts have said that the market value of this land could net off the entire RM3bil level of debt sitting at the holding company level of MMC. That is provided this land is sold at current prices.
Finally, there is the prospect of MMC itself being taken private. Bankers say this move could make sense because once MMC spins off its prime assets via listings, it will end up as a mere holding company.
“Wholly-owning the holding company makes more sense. You will enjoy the dividends directly (from the listed subsidiaries). Furthermore, MMC will come to suffer from a holding company discount as investors will switch to the direct holdings in the assets they are attracted to,” said the banker.
However, sources close to the company point out that other than the Malakoff listing, the other exercises are not being planned at this point.
“For the group, the thinking is very simple. The longer we hold unto these assets, the better their value. So there’s essentially no hurry to spin them off,” the source explained.
He adds that the floating of the assets are a function of the group’s debts. “The group will only seek to list its assets if debt obligations require it to do so,” adding that the Malakoff listing next year will essentially take care of MMC’s pressing debt obligations.
Notwithstanding this as early as January this year, analysts were already speculating such corporate exercises. CIMB Research in a report dated Jan 8 stated: “Investors are keen to know whether the (planned) Malakoff IPO is the start of MMC’s ‘deleveraging’ process”.
MMC’s total debts stand at about RM21.7bil. Out of this, around RM15bil is in Malakoff, RM2bil in PTP, RM1bil in Johor Port and its water business and RM3bil at the holding company level.
MMC owns 51% of power generator Malakoff, a 30.9% interest in listed oil and gas entity Gas Malaysia Bhd, as well as a 39.2% stake in construction outfit Zelan Bhd, which is also listed.
MMC also has an equal share in MMC Gamuda Joint Venture Sdn Bhd and MMC Gamuda KVMRT Sdn Bhd, where it is partnering Gamuda Bhd as the project delivery partner of the multi-billion ringgit Klang Valley Mass Rapid Transit project.
In September, M&A Securities had written that the unlocking exercise at MMC however had taken a back seat. “We do not see the possibility of PTP’s IPO in the immediate term as the port currently is still in on-going expansion of its berth,” the report said. This expansion is expected to be completed in FY2014.
However it was reported recently that one of the biggest container shipping companies, namely CMA-CGM, is looking to move its transshipment hub from Westports at Port Klang to PTP.
Industry observers said that these are among developments taking place at PTP, which would make it an attractive listing.
PTP currently is the largest port in the country by throughput volumes, providing services for container ships in south-western Johor.
As a transshipment port, some analysts say that PTP is also less affected by slowing global trade.
Going back to the Malakoff listing planned for next year, analysts say that the listing would bring in cash to MMC (as it should be selling some of its Malakoff shares into the IPO to bring down its holdings from 51% to around 40%) that will be used to lower the debts at MMC’s level.
And there will also be the bonus of being able to take off Malakoff’s debts from MMC’s books. This is because Malakoff will cease to be a subsidiary company of MMC.
M&A Securities reckons that MMC’s gearing would reduce from 2.7 times to 0.7times post the Malakoff IPO.
And as far as MMC’s potential privatisation is concerned, the source explains that this is certainly not on the cards, as it entails a lot of money.
Even analysts are not convinced that this is a planned exercise of the owners of MMC.
To buyout the remaining 48.24% it does not own, the owners would have to fork out at least RM5bil.
Coupled with its high debt levels, the analyst says it will not make sense for MMC to be taken private now.
MMC’s share price has taken a beating due to its lack of earnings visibility and momentum. As at end-June, net profit fell to RM43.86mil from RM752.2mil in the previous year due to the deconsolidation of Gas Malaysia. Revenue also fell to RM1.69bil from RM2.35bil in the same period.
At close on Friday, MMC traded at RM2.88 indicating a market capitalisation of RM8.77 bil. In the last one year, its shares had traded to a high of RM3.01 and a low of RM2.26.