Delay leads to sweetened deal for Tanah Makmur

Tanah Makmur Bhd’s major shareholder Tengku Mahkota of Pahang Tengku Abdullah Sultan Ahmad Shah sweetened his privatisation offer for the Pahang-based company last Tuesday, offering RM1.90 per share instead of RM1.80.

However, it would be wrong to think that it was an attempt to frustrate minority shareholders determined to block such a deal.

According to a source close to the matter, Tengku Abdullah had upped the offer price by 10 sen per share to compensate shareholders for the delay in completing the privatisation deal.

The privatisation was first proposed in May.

It is understood that Securities Commission Malaysia had taken longer than expected to approve certain aspects of the offer.

“No one seems to be blocking the deal, at least not yet. The revised offer was merely to compensate for the delay [in completing the deal],” the source tells The Edge.

The proposed privatisation exercise  is done through a selective capital reduction and repayment.  The additional 10 sen could be seen as the dividend the company would have declared if there were no such privatisation exercise.

The offer came at a 44% premium to Tanah Makmur’s initial public offering (IPO) price of RM1.25 a share. Pricing in dividends of 18 sen paid out since the bauxite mining, plantation and property development company was listed in July 2014 implies an even higher premium of 58.4%.

The revised offer price now values it at an implied premium of 66.4% since IPO, dividends included.

According to the source, it would take 3.2% of the company’s shares to block the privatisation deal from going through, or 10% of the non-interested shares. Based on Bloomberg data, AIA’s  two investment funds collectively hold 3.84% equity interest in Tanah Makmur.

Looking ahead, the company is expected to hold an extraordinary general meeting in mid-November. If all goes well, the privatisation would be completed early next year, notes the source.

That said, paying a 10 sen premium is relatively generous to compensate for several months’ delay.

Still, some say the sweet deal is not entirely surprising with Tengku Abdullah as the offeror himself.

Tengku Abdullah and the PAC collectively held a 68.08% stake in Tanah Makmur as at Oct 24, 2016. However, the proposed privatisation will allow 7.89% of the PAC to take up the offer and sell their shares to the offeror.

Tanah Makmur managing director Tengku Zubir Ubaidillah, alternate director Tengku Uzir Ubaidillah and non-executive director Tengku Datuk Seri Ahmad Faisal Ibrahim are among the PAC entitled to the offer and they are related to Tengku Abdullah.

The bulk of the entitled PAC shares are controlled by Uzir, who has been trying to exit the company for some time to focus on another of his companies — WZ Satu Bhd. Uzir began with a 17.64% stake in Tanah Makmur and has been actively disposing of his shares. At press time, he held a 1.78% direct and 6.8% indirect stake in the company.

The RM1.90 offer per share is deemed fair considering that Tanah Makmur’s earnings have almost halved this year following a ban on bauxite mining in Pahang.

Recall that the state banned all bauxite mining activities in mid-January following a huge public blacklash owing to the environmental fallout. Rust-coloured dust smothered neighbouring areas while rivers turned murky-red from the mining runoff.

Tanah Makmur is sitting on an estimated 1.5 million to 2 million tonnes in bauxite deposits. At US$45 a tonne, the deposits are worth an estimated RM283.5 million to RM378 million. Following the ban, Tanah Makmur’s net profit fell 45.8% quarter on quarter to RM6.97 million in the first quarter ended March 31, 2016.

Meanwhile, lacklustre crude palm oil prices continue to depress the company’s earnings from its main revenue generator — palm oil plantations.

That said, Tanah Makmur does have some potential value that justifies the sweet offer.

The company is waiting to capitalise on a RM400 million project to develop and construct Pusat Pentadbiran Sultan Ahmad Shah, which will form the new state administrative capital of Pahang, and potentially boost the value of its land bank. In a joint venture (JV) with Gabungan AQRS Bhd, in which Tanah Makmur has a 65% stake, the JV company Kreatif Sinar Gabungan Sdn Bhd was awarded a letter of intent from the Pahang government to undertake the proposed project.

Under the project, the new state administrative capital will be located in Tanah Makmur’s KotaSAS township.

Gabungan AQRS owns 30% of Kreatif Sinar Gabungan’s shares, while the remaining 5% is controlled by Sinar Realiti Sdn Bhd, which is in turn 99% controlled by the Tengku Muda of Pahang Tengku Abdul Rahman Sultan Ahmad Shah.

The project has been put on hold for over a year now due to funding issues. It is awarded by the Pahang government but is half-funded by the federal government.

It is noteworthy that Tanah Makmur’s largest shareholder is Lembaga Perusahaan Negeri Pahang with a 20% stake.

It is understood that the Pusat Pentadbiran Sultan Ahmad Shah project is still awaiting the final letter of award. If it is awarded, it would be a huge revaluation catalyst for the company.

Pusat Pentadbiran Sultan Ahmad Shah covers 26 acres within the 1,500-acre KotaSAS township. Thus far, the group has launched and sold about 1,200 units in the township.

However, Tanah Makmur is looking to develop over 6,000 units in total as well as a 228-acre commercial centre. If and when the new state administrative centre is officially confirmed in the township, the pace of development is set to pick up.

This article first appeared in The Edge Malaysia on Oct 31, 2016. Subscribe here for your personal copy.