Prelude to bigger deal?

MMC Corp Bhd’s plan to buy over Keretapi Tanah Melayu
Bhd (KTMB) could be a prelude to a bigger job offer from the government,
analysts say.



Affin Securities analyst Chong Lee Len believes that MMC or its
controlling stakeholder Tan Sri Syed Mokhtar Al-Bukhary may get a
“sweetener” from the government for taking over KTMB.

Jupiter
Securities head of research Pong Teng Siew also thinks the government
may offer MMC a huge contract for helping to take over the loss-making
company.

Business Times reported on Monday that MMC was
undertaking a due diligence to privatise KTMB and pump in some RM1
billion to take control of its operations. MMC has confirmed the report.

KTMB,
which has been a takeover target for a long time, has been bleeding red
ink since its corporatisation in 1992 due to high operating costs.





The national railway company did make a net profit of RM9 million to
RM15 million from 1993 to 1995, before falling into the red again in the
following years.

Pong believes the RM1 billion investment by MMC may not be enough to stop it from bleeding.

“I
think MMC may not be able to swallow KTMB because of its size and
unprofitable business. Our railway lines are short haul railway and you
won’t get the kind of economies of scale as you would with long haul
railway like in the West.

“The commuter trains are also heavily
subsidised for the simple reason they can’t make money. I’m not sure why
MMC think they can turn around KTMB unless they are getting something
out of the deal,” Pong told Business Times.

The analysts are not so worried that MMC is stretching its borrowings to acquire assets.

The
company recently said it is buying Penang Port, while another Syed
Mokhtar’s company, DRB-HICOM Bhd, is bidding for a stake in Proton
Holdings Bhd.

MMC is currently Malaysia’s single largest borrower
with net gearing level of 218 per cent. As at September 30 2011, it has
debts of RM19.4 billion.

“Some RM16.2 billion of the borrowings are mainly to finance power projects, which are a cash-generating business for MMC.

“I don’t think MMC will have issues with financing all its deals as it has strong bankers’ support,” Pong said.

Chong,
meanwhile, said the listing of Gas Malaysia Sdn Bhd next year and the
possibility of Malakoff Bhd being floated on the stock exchange will
provide cashflow for MMC to take up new acquisitions.

OSK Research believes MMC’s balance sheet may be stretched by the development unless other asset sales are in the pipeline.