Short Position

by **Cals** Mon 02 Nov 2015, 04:01

Short Position

EDRA sale done?
1MALAYSIA Development Bhd (1MDB) is close to the finalisation of the sale of its power unit Edra Global Energy Bhd and it is likely to be a foreign bidder.
The stake being sold may be a majority one, with 1MDB remaing as a sizeable minority to ride on the future upside of Edra.
Edra has in its stable five domestic and eight international power plants.
Three parties are the finalists in the bidding process for Edra, with Tenaga Nasional Bhd being the only local party.
StarBizWeek had previously made the point that the sale of Edra should go to the highest and most attractive bid, irrespective of whether it is from a foreign party.
If the foreigners are prepared to pay a handsome sum for Edra’s assets in the process, then so be it. The power plants cannot be uprooted and taken away.
What is important is that an efficient and transparent price discovery method – such as a competitive bidding process – is used to determine Edra’s asset.
It has been reported that 1MDB is weighing various criteria in its selection process such as pricing, the terms proposed by the bidder and how fast and efficiently the transaction can be executed.
1MDB is due to hold a press conference today, the first since the controversy over its RM42bil debt came about more than a year ago. Perhaps, there will be more details coming out on the sale of Edra.
The sale of Edra’s power assets, valued at RM18bil in 1MDB’s books, is part of the latter’s rationalisation plan to reduce its debts of close to RM42bil.
1MDB had paid RM12bil for the equity of the power assets under Edra and assumed debt worth RM6bil when it completed the purchase of the power assets. It was reported that 1MDB did not put a reserve price on Edra, but had hoped to sell the energy assets at a price close to its book value.
Rimbunan Sawit in focus

SAME company, more shares. This is the story of Jaya Tiasa Holdings Bhd acquiring a 9.9% stake in Rimbunan Sawit Bhd earlier this week.
Tan Sri Tiong Hiew King, who controls Jaya Tiasa, is already a major shareholder of Rimbunan Sawit with a 55.99% stake. Last week, the Sarawak tycoon moved a block of shares in Rimbunan Sawit from his investment vehicle to Jaya Tiasa.
It was a related-party transaction amounting to RM70mil involving 140 million shares of Rimbunan Sawit. But it would hardly cause a dent to the balance sheet of Jaya Tiasa, which is a large timber and plantation player from Sarawak, or make an impact on Rimbunan Sawit.
The reason cited for the movement of shares was to facilitate a “direct business transaction” – meaning it is a transfer of shares between two related entities.
Generally, companies do not move shares around for no reason. It is for a restructuring or to facilitate some kind of fund raising.
In this case, there may be no reason at all to get excited. The palm oil sector is still struggling with an oversupply situation and demand has not picked up. Many plantations are above water largely because the ringgit has fallen against the US dollar, causing the average selling price to be higher.
If not for the weaker ringgit, many plantation companies would have incurred losses.
Under such a scenario, when prices are low, consolidation is a good tactical play to increase efficiencies.
In this respect, Jaya Tiasa has plantations but it is not a significant contributor to the bottom line of the company. Rimbunan Sawit, on the other hand, is a pure plantation play.
Perhaps the share transfer would be followed by a consolidation exercise in the future?
Population for growth is key

ONE of the few basics for economic growth has always been population.
Technology improves productivity and land allows for expansion, but the essential building driver of economic growth has been people.
It’s no wonder then that China has abandoned its decision on its one-child policy for future economic growth. However, the jury is still out on whether the decision has come too late.
Singapore tried to limit its population by mimicking China’s policy decades ago, but abandoned it once it realised that it is people who will consume and have the ability to innovate to drive economic output higher.
The problem now is that it might be too costly to have large families than before. There is a reason why there is a generation called the baby boomers and it was during this time that the US economy saw tremendous growth.
But as generations go by, the size of the family unit shrinks. It’s rare to see large families today because there is one reality that prevents that from happening: cost.
It is not cheap to bring a child into this world and because of that and the rat race that both men and women partake in, there is little desire to have large families today. The birth rate alone will be testament to this fact.
The difference between China and the United States is that the size of the population of China will inevitably shrink in the decades ahead, while the population of the US will probably increase. The chief reason for this is migration, as the US sees a steady influx of people wanting to emigrate to the world’s largest economy.
The English language and the US being a melting pot of different cultures allows for this and it is a differentiator of growth in today’s world. It is these two points and the attraction of a country as a good host country for diversity that will allow for future economic growth. Malaysia too went through this phase prior to independence and that lesson must not be lost on us.