The short position Saturday, 21 March 2015

by **Cals** Mon 23 Mar 2015, 00:27

The short position

Saturday, 21 March 2015

Inconsequential offer?
AMIN Halim Rasip’s latest move in the Integrax Bhd saga has caught the market by surprise. Recall that Integrax is the subject of a buyout by Tenaga Nasional Bhd (TNB), whereby every single shareholder of Integrax has the opportunity to participate in that offer.
Amin, who owns about 24.55% of Integrax and who has opposed the buyout by TNB at least at the current offer price, made a curious offer on Wednesday. He offered to buy only 5% of Integrax and that too, only for one particular shareholder, namely Perak Corp Bhd which owns 15.47% in Integrax.
In other words, Amin’s offer has no impact on all the other minority shareholders of Integrax.
And even for Perak Corp, Amin’s offer must seem uninteresting.
True, Amin’s offer of RM3.50 per Integrax share is higher by 8% that the latest revised offer by TNB of RM3.25. But Amin’s offer is only for one third of Perak Corp’s holding in Integrax. Furthermore, for Perak Corp to accept Amin’s offer, there are some onerous conditions, such as Perak Corp must retain its remaining 10.74% stake for three years and if it decides to sell its remaining stake, Amin would be given the first right of refusal to purchase the said shares.
Considering all of this, it does seem that Perak Corp may not be inclined to accept Amin’s latest offer and that its turn would mean that his offer is inconsequential.
The offer by Amin is indicative of his perseverance in this matter. He has said that he sees more value in Integrax, and at one point claimed the shares of that company were worth RM5 each.
As such, this move by Amin may be only his first salvo. It is left to be seen if Amin can raise more money to launch a general offer for Integrax at a higher price than what TNB is offering, perhaps with some financial or strategic partners in tow. Or, will his latest move pave the way for a settlement to be reached between TNB and Amin?
Shareholder activism
SHAREHOLDER activism in Malaysia is often led by institutional funds in the likes of the Employees Provident Fund and Permodalan Nasional Bhd. These funds are minority shareholders in many listed companies and they are often looked on to protect the interest of other minorities in the company.
So when a group of individual minority shareholders stand up to take a company’s management to task on certain corporate affairs that they feel strongly about, it is a discernible shift from the general trend.
Earlier this week, 23 minority shareholders of Tanjung Offshore Bhd who collectively own 6% of the latter, filed a police report alleging irregularities in the company’s Birmingham property deal. Tanjung Offshore, if one is following the news, is embroiled in a boardroom tussle.
Amidst this, a group of minority shareholders have been seeking for an explanation for what they opine are contradictory filings on Bursa Malaysia with regard to the company’s diversification into the property sector.
Tanjung Offshore, which is involved in the oil and gas sector, has been without a core business after selling its offshore support vessel (OSV) business to Ekuiti Nasional Bhd in 2012. The company has attempted to re-enter the OSV market via a proposed reverse takeover with Paris-based Bourbon SA, but that deal was terminated following the oil price slump.
Regardless of the outcome of this saga, what is interesting is that minority shareholders are now more willing to engage with company boards and managers to safeguard their investments. This is unlike the past when such shareholders only voted with the feet, namely by selling the shares in companies that they were not comfortable with.
Hence the development at Tanjung Offshore is a positive one for the market and other minority shareholders should take a leaf from this group.
Airlines woes
FOR years, Asian carriers have been complaining that the emergence of full service carriers such as Emirates and Etihad have unfairly taken away business from them.
The Asian carriers complained that the Middle East carriers received subsidies from their respective governments in the form of cheap loans, cheap parking and landing charges and that the ground workers are underpaid because most of them are from places such as India and Pakistan.
Now the US and European carriers have joined the bandwagon, making similar complaints against the Middle East carriers.
In a report attacking the Gulf airlines, the western competitors claim that the former has received a total of some US$41bil in unfair subsidies over the last 10 years. But then, other airlines have also been supported by their governments. In Malaysia, for example, Malaysia Airlines has received RM17.4bil from the Government since June 2001 and 2014.
The emergence of Middle East carriers must be more than money. It is also because of their geographical location. Sitting right in the middle of the East and West makes them an ideal air hub.
They have also embarked on other innovative measures which have helped them thrive: because they are new, they have began operations minus the legacy practises that bog down older airlines. They also use newer aircraft and fly from their airports which have lower fees direct to smaller cities rather than through hubs, moves which are seen as lessons learnt from the low-cost revolution that began in the 1970s.
So, rather than filing complaints against the Gulf Airlines, existing players ought to take note of the disruptive changes that these new kids on the block have brought into the game and figure out ways in which to compete against that.