YTL Corp, the Juggernaut

In an interesting corporate development,YTL Corp has divested all its assets and property projects in Malaysia and Singapore to its its 60.72%-owned unit, YTL Land. The disposal will bring in a substantial RM476.05mil to YTL Corp.

The disposal consideration and settlement of the outstanding intercompany balances of RM476.05mil is to be satisfied by the issuance by YTL Land of RM253.03mil nominal value of 10-year 3% stepping up to 6% irredeemable convertible unsecured loan stocks (Iculs) at 100% of nominal value of RM0.50 per Iculs and the remaining RM223.02 in cash.

In tandem, YTL Land would also undertake a renounceable rights issue of Iculs to raise funds to partly satisfy the cash portion. YTL Corp would subscribe in full for its entitlement under the proposed rights issue of Iculs.

The conversion price of the Iculs has not been fixed. The Iculs and the new YTL Land shares to be issued arising from the conversion of the Iculs would be listed and quoted on the Main Market of Bursa Securities.

Under the share sale agreements, YTL Corp would dispose of its 100% stakes in Arah Asas Sdn Bhd, Satria Sewira Sdn Bhd, Pinnacle Trend Sdn Bhd, Trend Acres Sdn Bhd and its entire 70% stake in Emerald Hectares Sdn Bhd to YTL Land.

Meanwhile, YTL Corp's wholly-owned units YTL Singapore Pte Ltd, Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd also entered into share sale agreements with YTL Land.

YTL Land had also entered into a land deal with YTL Land Sdn Bhd.This is in line possibly with YTL Corp's ongoing strategy for its principal business arms to own and operate the relevant assets within their business spheres in order to leverage on operational and developmental efficiencies and synergies.

Accordingly, the disposals are aimed at unlocking the value of YTL Corp's investments in its property units and projects.

YTL Corp would continue to participate in and benefit from the development, potential earnings and capital appreciation of the land owned by the disposed firms through its existing shareholding in YTL Land and its interest in the Iculs and/or the YTL Land shares arising from the conversion of the Iculs.

YTL Corp said the net cash proceeds from the proposed disposal and the settlement of outstanding intercompany balance would be utilised for general working capital purposes.

Until such time as the net cash proceeds are utilised, they will be held in interest-bearing bank deposits, money market instruments, deposits and/or other realisable short-term investments pending further evaluation of the strategic options and opportunities of YTL Corp and its subsidiaries, it said.

So, it looks like the biggest non-GLC on Bursar just got bigger.......and this elephant may just fly soon.

MRCB's Anti-climax Merger

Just when you thought that MRCB has finally came out on its own to be a branded corporate entity,  a merger is now on the card  to create a mega property company by fusing it with IJMLand.

The market did not like it and shunned the so-called corporate development. Instead prices of both IJMLand and MRCB fell when they resume trading.

Investbank Bank OSK has reduced MRCB to a 'neutral' recommendation on the basis that the details of the proposed merger with IJM Land Bhd have yet to be finalised. If so, I think OSK is merely jumping the gun with this silly pre-judgment.

The new MRCB and IJM Land proposed merger will make it the second largest property player with revalued asset of  RM6.5 billion.

According to OSK, there has yet to be a decision on whether the proposed merger will be satisfied via a purely share swap for shares in the newly incorporated company (newco) or a combination of both shares in newco and cash,

According to the OSK report,"The RM2.30 offer price for MRCB offers only seven per cent and 12.2 per cent upside from the last closing price and our previous fair value respectively.As such, it is viewed that the  offer price as somewhat fair and yet not that attractive, owing to the rather limited premium or upside."

Nevertheless, it did not rule out the possibility of MRCB's share price overshooting the offer price over the short term, driven by the excitement over the proposed merger.

Both parties are expected to enter into a definitive merger agreement within three weeks from the date of the MoU.

On the longer perspective, I think the EPF strategists  are gunning for a large hoard of cash before they embark on the Sungai Buluh mixed development property land development scheme and this could be one of its proposed pipeline..

Fund Inflows to Bursar to come from the US?

I append an online news item by Lee Wei Lian of Malaysia Insider. I think this is important for those who still wants to dabble in the stock market.

"Bank Negara said it is not currently considering implementing capital controls to deal with inflows of funds due to massive liquidity in western economies that are seeking higher returns in faster growing emerging markets.

Bank Negara Governor Tan Sri Zeti Akhtar Aziz noted today that large and volatile capital flows into regional economies could pose risks to macroeconomic policies and financial stability but said that Malaysia was in the position to intermediate the flows and had also gained experience from the 1997 Asian financial crisis.

“We are not considering any kinds of restrictive measures,” she said. “If the need arises, we will act collaboratively with other central banks in the region.”

The US government has announced plans to pump US$600 billion (RM1.86 trillion) in liquidity into its economy by June next year in a bid to boost its economy.

Critics of the plan contend that much of that money will find its way to emerging markets due to higher interest rates and better performing stock markets, potentially creating asset bubbles in those countries.

Gross inflows of foreign direct investment grew to RM8.9 billion in the third quarter from RM5.3 billion in the second quarter, reflecting larger inflows of equity capital and drawdown of intercompany loans, Bank Negara said today.

It added that portfolio investment in the third quarter registered a larger net inflow of RM9.3 billion compared with RM6.2 billion in the previous quarter due to foreign interest in the local capital market, particularly the equity market.

The Advent of Spoonerism

Have you ever notice that sometimes we say words wrongly by swapping initial consonants or syllables? For instance, instead of saying ‘slip of the tongue; we say instead, ‘tip of the slung’. Similarly, you may have heard friends saying ‘nix the muts’ when they actually wanted to say, ‘mix the nuts’

This kind of oral abberation is called spoonerism in English. Spoonerism was named after Reverend William Archibald Spooner who was prone to muddle up his words while giving sermons as he could not see properly. Some of his fumbles were extremely laughable. 

He was heard once to have said ‘It is kisstomary to cuss the bride.’ Then there was that time when he said 'Pardon me, padam, this pie is occupewed. Can I sew you to another sheet?’

Then there was this lecturer in college who was also into spoonerism. There was a time when he said to a student, "You have hissed all my mystery lectures!’ Having tasted two worms, you will have to leave by the next town drain".

Thent there was that school disciplinary teacher who chastised two boys ‘for fighting a liar’ when he actually meant ‘lighting a fire!’

And what about some people  who habitually said raining ‘dats and cogs’ when they could not attend classes at college or go out?

So, have you heard of any good spoonerisms lately?

Capital Market:A Better 2011

The outlook for fund raising activity in the capital market looks promising in the first-half of next year, so says Maybank Investment Bank . 

“Judging from the last two quarters and going forward, the next first-half of 2011 is promising. We have seen the success of the recent new listings or initial public offerings (IPOs),” its Chief Executive Officer Tengku Datuk Zafrul Tengku Abdul Aziz said.

The new listing are that of Malaysia Marine And Heavy Engineering Holdings Bhd on October 29, and Petronas Chemicals Group Bhd which is scheduled for listing on November 26.

Tengku Zafrul said the local stock market is active based on the market volume and value traded, and also the high level of investments from foreign investors, in terms in foreign shareholdings and participation.

“Fund raising activity would continue in the first-half of 2011 based on new IPOs in the pipeline. We expect positive growth as the pipeline is better than what we have done so far this year,” he said.

Tengku Zafrul also said there are several new listings in the pipeline and this is healthy, adding that the trend would likely to continue.

He said the market also saw placement activities taking place this year namely the Telekom Malaysia Bhd and Malaysia Airports Holdings Bhd, adding that placement exercises would boost trading activity.

“Hopefully, with the continuation of these placements by Khazanah or other bigger investment companies, will create a bigger free float for investors to come in and trade in the stock market.

“The liquidity is there but free float is not as big as other developed countries because our shares are tightly held by big institutions. So there are no opportunities for foreigners or private investors,” Tengku Zafrul said.

He said with these kind of placements in the market, it will not only offer an opportunity to foreigners and private investors, but will also boost the share price of the company.

Tengku Zafrul said the local stock market continued to be strong not only in volume but also the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) was at a healthy level. “Reaching 1,600 is not impossible,” he said.

The FBM KLCI closed 6.24 points higher at 1,506.05 yesterday compared with last week’s 1,499.81.

Tengku Zafrul said among the factors that would continue to support the local bourse are rising foreign liquidity inflow, particularly, from the United States, Europe as well as Asia, amid a higher return in this region.

On the Malaysian economy, Tengku Zafrul said the Gross Domestic Product (GDP) for this year would be around seven per cent and growth would moderate next year at six per cent. Bank Negara Malaysia is scheduled to release third-quarter GDP figures next Monday.

“Looking at that, the market will consolidate. But for the first six-months it still looks strong. I do not think there will be a double-dip recession as the economy is growing and the market is performing well,” he added.

Care to Invest in Careplus?

Careplus Group Bhd, a rubber glove maker,is enroute for a listing on the ACE market of Bursar.

At its prospectus launch yesterday, it stated its aim to double revenue by 2013 from the RM41.86 million registered for the year ended January 31 this year. This is indeed an aggressive expansion plan.


Over the next three years, it aims to almost quadruple its production capacity to more than 1.65 billion pieces of gloves, from 420 million pieces currently.

The expansion will be done in three phases namely , commissioning in first quarter 2011, third quarter 2010 as well as third quarter 2013.Along with its exponential jump in capacity,Careplus is confident that its output will  easily be absorbed by an expanding global market.

Its CEO,Lim Kwee Shyan explains it this way.

"First of all, we are a very small player, with less than 1 per cent market share. So, even if we double up (our capacity), it wouldn't even touch 2 per cent. So, I believe there will be a market that we could undertake to support our increasing capacity,"

Lim added that in terms of doubling or tripling the company's supply to the global market, it is still a very small portion in the total gloves requirement.

"The global gloves market is expected to grow at a 8 per cent to 10 per cent rate annually, so that 8 per cent to 10 per cent growth is a very huge quantity."So that itself will give a big room for a player like us," he said.

The company aims to raise about RM15 million from the initial public offering exercise, involving the public issue of 65.05 million new shares of 10 sen each at 23 sen a share.

Of the 65.05 million shares, 10.5 million will be available for public application and 15.65 million for application by directors, employees and business associates. The remaining 38.9 million will be reserved for placement to selected investors.The proceeds will be used to expand Careplus' production capacity, which includes buying machinery and equipment for production lines.

"In terms of having the economies of scale, we need to go into that expansion phase. We cannot get the cost efficiency if we work on one or two production lines," Lim added.

Currently, the firm produces only natural rubber gloves. The commissioning of the new production line next year will allow it to also produce nitrile gloves.

"We are focused more on latex gloves and will eventually start production of nitrile gloves, in line with our expansion. This new investment has given us an opportunity to grow, which we have not been able to do so over the past five to six years.

"With our strong customer base, I believe that it is possible for us to achieve growth and attract newer customers in future," non-executive chairman Peter Yew explained.

The firm is expected to be listed on the ACE Market on December 6.

So, what do you think its opening price will be like?. You know, the market is always right...

Time Dotcom Dumped on Restructuring

It was a prima donna of a share for sometime, being preferred to Time Engineering. While Time Engineering hovered around the middle 40 sen range, Time Dotcom (TdC) catapulted upwards by 54% into the 70 sen price range.

Then, whammo! Both counters were given short shrift and dumped summarily by investors who see the reorganisation and purchases as intrinsically bad!

While investors acted negatively, some analysts however felt TdC’s proposals were fair to the company.

TdC’ shares slumped a massive 14 sen to close at 63 sen yesterday. Trading in its shares resumed yesterday after being suspended since last Friday. TdC was the most heavily traded stock with 107.9 million shares done.

Time Engineering's price melted down 8.5 sen to 43.5 sen.

An analyst said the market may be viewing the company’s announcement unfavourably due to the dilution impact from the issuance of new shares to pay for the acqusitions.

“There is also lack of clarity on whether the acqusitions are earnings accretive,” he said.

Another concern was the related party nature of the transactions, as the companies being injected into TdC belong, in part, to TdC’s CEO Afzal Abdul Rahim.

However, it should be noted that Afzal as well as Khazanah Nasional Bhd (the latter also partly owns some of the assets being injected into TdC) will not be voting on the deal, leaving minorities the full power to decide on the matter.

While the deal will make Afzal the single largest shareholder of TdC, this has been a stated intention of Khazanah in its earlier announced divestment plan of TdC.

“Afzal is getting paid mostly in shares rather than cash. This suggests that is in this for the long haul,” said a dealer.

TdC announced on Monday that it proposed to buy three companies for RM339mil. The three companies were AIMS Group, which would be acquired for RM128mil, of which RM38.4mil would be in cash; Global Transit Communications Sdn Bhd (GTC) for RM106mil in stock and Global Transit Ltd (GTL) for RM105mil, of which RM52.5mil would be in cash and the balance in shares.

The acquisitions would be financed by RM90.9mil in cash and RM248.1mil in shares, and is expected to be completed in six months. The analyst viewed the acquisition price of the deals as fair, citing that these companies were in fast growing industries.

TdC is paying between 15 times and 23 times historical price earnings for GTC and AIMS, while it is taking over GTL (the owners of a 10% stake in the Trans-Pacific Unity Cable connecting Japan and the United States) for RM105mil.

“Its not exactly cheap, but these companies are growing fast. In the case of GTC, it recorded a loss of RM79,613 for the year ended Dec 31, 2008. For the nine months to Sept 30, 2010, it made RM5.11mil. AIMS is also growing. [ This is good if sustainable]. If these companies continues to grow at a 20% rate over the next few years, there may be no dilution impact at all,” the analyst said. [What a long haul!]

Under the capital restructuring, TdC announced a capital repayment of 2 sen per share, or a total of RM50.6mil.

On the proposed share consolidation, five shares of 10 sen each would be consolidated to one share of 50 sen each.

It means that if you currently have 5 lots of 1000 shares at RM1 par,then the conversion will firstly result in you having 5 lots of 1000 shares at 10 sen par. Next, you will have to undergo a conversion exercise where every 5 new shares you have will be consolidated into one 50 sen share,effectively rendering you to own 1 new lot of 1000 shares with 50 sen par. Is it worth it?

“The share consolidation is actually positive as it shows that management wants to institutionalize the shares,” said a fund manager.

With the consolidation, the issued and paid up capital of the company remains the same at RM253.08mil, while the total number of shares would be reduced five times lower to 506.16 million shares of 50 sen each.

The dealer said that with TdC consolidating its assets to create Malaysia’s and in future Asean’s prime wholesale data and backhaul network, TdC would be able to bundle together attractive packages at competitive prices for both domestic and regional telco companies and services providers.

The dealer added that with the onset of increased data traffic driven by new mobile devices and technology upgrades, demand for data would only grow stronger. He said the deals would position TdC on solid footing to benefit from the trend.

Looks like the people in the know are in this leverage buy-out and indicative that Khazanah is actually divesting to favourable parties.

Will the new owners be able to bring in potential business as it projected?

That I want to see.