PETALING JAYA: Ekuiti Nasional Bhd (Ekuinas) may have fetched a much higher price from the divestment of its 61.6% stake in Konsortium Logistik Bhd (KLB) to DRB-Hicom Bhd, if it had revalued the property assets in the logistics provider before the sale.
However, the government-linked private equity (PE) fund defends the asset sale as a fair deal, pointing out that the sale price is already undertaken at 2.1 times net tangible assets (NTA), reflecting a premium to KLB’s book value.
On Oct 25, Ekuinas announced that it had divested its entire equity interest in KLB to KL Airport Services Sdn Bhd (KLAS), a wholly owned subsidiary of DRB-Hicom, for RM241 million cash, or RM1.55 per share.
The divestment has raised eyebrows as the sale price of RM241 million is exactly the same price Ekuinas had paid when it acquired the controlling stake in KLB from Dream Hectares Sdn Bhd, PBS Office Supplies Holdings Sdn Bhd and KLB’s then executive board member Loo Hooi Keat three years ago.
Given that the landbank in KLB had not been revalued for years, some quarters believe that the controlling stake held by Ekuinas should be worth more than RM1.55 per share. Some of the assets have not been revalued since they were acquired in the 1990s.
These assets include two plots of land in Port Klang, each measuring 35 acres (14.16ha). The one in Pulau Indah has not been revalued since it was acquired in 1998, while the other in Bandar Sultan Suleiman was last revalued in 2010.
The Bandar Sultan Suleiman land has a net present value (NPV) of RM30.9 million, while the one in Pulau Indah has an NPV of RM18.4 million. It also has some 13 acres in Pasir Gudang which were last revalued in 2002 and other smaller plots in Penang, where land is getting scarce and dearer. It is perceived that DRB-Hicom has sealed a good deal.
Nonetheless, Ekuinas has defended the sale price as “fair and reflective of the underlying value of KLB”.
“The sale price accepted by Ekuinas was made after Ekuinas carried out an exhaustive and targeted sale process with the assistance of a leading global investment firm, which saw five global and domestic players submitting serious interest.
“All these parties would have taken into account the underlying value of the assets of KLB (including their market value), their operations and future potential when submitting their proposals,” Ekuinas said in a reply to The Edge Financial Daily when asked about the pricing of the asset sale.
Ekuinas said DRB-Hicom was selected after a detailed evaluation based on merit, and after the group submitted the most compelling proposal in terms of best price, strategic fit and social objectives sustainability.
“Whilst details of all bids have to remain confidential, rest assured DRB-Hicom was selected after detailed evaluation based on merit, after the group submitted the most compelling proposal in terms of price, strategic fit and social objectives sustainability,” explained Ekuinas.
But this leads to more questions on the asset disposal, such as whether Ekuinas had paid more than it should have three years back, considering that the PE fund could only fetch the same price for its divestment. Also, why did Ekuinas sell it so soon, just barely three years after it had invested in KLB? And what was the rationale for the investment in KLB since it did not seem to want to add value to the company?
Ekuinas was formed in September 2009 as a government-linked PE fund to promote equitable and sustainable bumiputera economic participation. It was endowed with a RM5 billion seed capital by the government.
The PE fund pointed out that over the three-year period it held a stake in KLB, it had received accumulated dividends of RM96.5 million, generating a gross internal rate of return (IRR) of 17.6% per annum or 1.5 times the invested capital.
The sale price received by Ekuinas translates into 11% premium to KLB’s weighted share price over the last three months of RM1.40 and represents 2.1 times the logistics provider’s NTA as at June 30, 2013.
According to Ekuinas, the 17.6% per annum IRR is already a good return for the fund.
Such high returns of 37.7 sen per share in the financial year ended Dec 31, 2011, was on top of an interim dividend of eight sen per share. The dividend payments cost KLB RM99.18 million against its cash balance of RM110.8 million as at Dec 31, 2011.
This article first appeared in The Edge Financial Daily, on November 06, 2013.
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