Thursday, May 05, 2011

How Will Previous Shareholders Feel About Bumi Armada's Re-Listing

18 June 2007: Bumi Armada Sailing Again???

See this posting
The Pirates which seized the Armada

Ms. Claire Barnes of Apollo Investment Management wrote the following (
here )

  • To go back to the merits of the shares: in the five years since we first bought Bumi Armada, revenue has tripled. This corresponds to growth of 25% per annum, which is perhaps slightly higher than the growth in other aspects of the business, but broadly reflective. In purely qualitative terms, before thinking about valuation, this is one of the gems of the Malaysian market. It has an excellent service record, it has good relations with its customers in the offshore oil and gas sector, and apart from 1997, when it recorded unrealized FX losses on an appropriately matched loan book, it has sustained returns on equity of comfortably over 20%. It is highly cash generative, and when the Land & General stake was overhanging the market we put forward an MBO-and-buyback proposal which would have seen the debt paid down in short order while generating phenomenal growth in earnings, net assets, and cashflows per share. This opportunity was not taken, but delisting aside, the shares would remain attractive; the offer is far from generous, and clearly includes no premium for privatisation. We didn't sell at RM8.00 two years ago, and Mayban Securities on Friday published a buy recommendation valuing the shares at RM12.20, which is arguably conservative.

    Bumi Armada reported earnings per share of RM1.01 for 2002, with an upbeat assessment of outlook for the year ahead, so is on a current-year PE of 6-7 - perhaps half that of the market
    , despite better-than-average business characteristics and growth prospects, although some discount is normal for illiquidity. In its recent announcement, it has however cut back on operational background, provides no details of major contracts, and omitted any final dividend despite its earnings growth. (This last has particularly incensed some minority shareholders who are surprised 'that Ananda Krishnan should be involved in such a deal'.) This reticence is unfortunate given the conflicts of interest involved.

    In the event of a forced delisting, we believe that there would be a legal case against the directors and the controlling shareholders for oppression of the minorities, but costly and time-consuming legal action is a last resort for investors in any jurisdiction.

    We were pleased to see that Mayban remains optimistic about Bumi Armada's prospects, but admit to being surprised by the timing. Maybank, its parent, was amongst those which originally jumped at the RM7. This must be proof of their Chinese walls - or of the different thought processes of bankers and investors. We are more impressed by this than by the role of RHB Sakura, which also agreed to sell its Bumi Armada shares in August, and wonder whether it was already advising the company or the buyer: as far as we know, the invitation was extended only to Malaysian banks, and not to a single foreign bondholder. Bondholders who expressed a desire to participate immediately after the deal became public were told that it was already too late - which is presumably lawful, but was certainly discriminatory, and not the sort of thing to make foreign investors think they are on a level playing field.

    If an offer is mandatory, it is not necessary to have bureaucrats review the decision. In this case, the controlling shareholders have to pay RM7, but they only have to pay it much later to minorities than to the favoured few. In other cases, it might suit a cash-strapped acquirer very well to avoid a general offer altogether; again, why should officialdom help him? (To avoid any confusion, we would like to be absolutely clear: if a shareholder acquires control, there should be a general offer at the same price, but minority shareholders should be free to refuse.)
    Information flows are important, and much more troublesome than they should be in the era of electronic communications. International investors frequently cannot obtain announcements and circulars through the global custody network in time to consider them adequately; frequently they arrive too late to meet corporate action deadlines. Listed companies should be required to copy the local stock exchange and international wire services with all announcements relevant to investors - such as announcements to Euroclear. This responsibility should not be left to companies: they respond when it suits them, and forget when it doesn't.


So Bumi Armada was highly rated. Growth of over 25% per annum, excellent service record, return of equity of over 20% and great cash flow.

Then out of the blue, Barmada (Bumi Armada), as Claire described "has however cut back on operational background, provides no details of major contracts, and omitted any final dividend despite its earnings growth."

And then it decided to announce to delist with an offer of 7.00! When Mayban conservatively valued it at 12.20.

And so Bumi Armada was delisted.

Remember back in 2002, Bumi Armada had an eps of RM 1.01 per share. Yes, an eps of RM 1.01! (you can verify it here: Quarterly rpt on consolidated results for the financial period ended 31/12/2002 )

And it had growth rate of 25% per annum.

And Bumi Armada was delisted at rm 7.00.

That's an PE multiple of 7x.

Yup!

On today's newspapers:

'Bumi Armada eyeing US$1b from IPO'

Published: 2011/05/05

Bumi Armada's IPO, which will be one of the largest announced in Southeast Asia this year, was delayed several times in the past few years.

KUALA LUMPUR/SINGAPORE: Malaysian oil and gas services provider, Bumi Armada, plans to raise nearly US$1 billion (about RM3 billion) from its initial public offering (IPO), the largest offer in Malaysia since the listing of Petronas Chemicals last year, sources with direct knowledge of the deal said.

"It is a US$1 billion IPO, which values the company at about 20 times price-earnings for its 2011 earnings, and 16 times for 2012," a banking source said yesterday.

Bumi Armada's chief executive officer Hassan Basma could not be reached for comment.

The company filed a draft prospectus for its IPO with the country's securities regulator.

Bumi Armada said it plans to sell 878.6 million shares, of which 644.3 million are new shares and the rest are existing shares held by its present shareholders through the IPO.

The draft prospectus did not detail the timeline of the share offer or the composition of shares that will be made available to institutional and retail investors, as is the practice for draft filings in Malaysia.

Bumi Armada is an offshore support specialist and the only Malaysian company that owns floating production storage and offloading vessels, which carry a premium lease rate.

Bumi Armada's IPO, which will be one of the largest announced in Southeast Asia this year, was delayed several times in the past few years.

The company was privatised in 2003 by tycoon T. Ananda Krishnan, and a planned relisting in 2008 was delayed due to the global financial crisis. A subsequent relisting plan was also shelved.

One fund manager said the Malaysian market had appetite to support an IPO of Bumi Armada's size.

"I don't know whether it's the same company as it was in 2003 when it delisted, because I've been told they've injected other assets," MIDF Amanah Asset Management's chief executive officer Scott Lim said, adding that he needed more information on the company before deciding whether to invest in the stock.

The Malaysian oil and gas sector has been identified as one of the key economic areas under the government's economic transformation programme, which aims to boost investment and raise the national income level.

The country has also seen significant investment commitments from foreign companies, such as a total of US$4.9 billion (RM14.6 billion) by Exxon Mobil and Royal Dutch Shell, to develop new assets in the country, the government has said.

The joint global coordinators for the IPO are CIMB, Maybank and Credit Suisse, which are also joint bookrunners with RHB, CLSA and UBS. - Reuters

Link : here

The highlighted statement in red sticks out sorely.

The stock was delisted when the company made the privatisation offer at RM 7.00 in 2002. Bumi Armada specifically said did not want to remain as a listed entity. With the privatisation offer, they stated clearly they want to delist. They want out of KLSE.

The offer for the shares were based on an insane offer of 7 pe multiple. And it's even horrendous if one factors in the fact that Bumi Armada was enjoing a 25% annual growth.

Today the company wants to re-list

Quote: "It is a US$1 billion IPO, which values the company at about 20 times price-earnings for its 2011 earnings, and 16 times for 2012," a banking source said yesterday.

What? WHAT? WHAT?

Delisted at 7x pe. Now it wants to relist at 20x pe.

Hell yeah.

Life is apparenetly too great.

16 comments:

William Wang said...

Nothing surprise me on hanky panky that comes out from this person. Investing public should be aware of anada krishnan, this is not the first time he had done such time, strip off all assets, indebt the company & have it listed again.

snowball said...

Thanks..a very good read especially the one by Apollo Investment Management. I do not even know they exist [show how little I know :-)] and man..their records, which is after a 15% incentive fees, is amazing. It seems that TTB can't even claim to be the best fund manager in Msia. Their website is worth a visit.

They say Ananda usually treats his shareholders fairly. But, I think, based on what is written, the minorities shareholder clearly are in the short end of this case.

I know this cow do not provide stock tips, but, do you dispense advice? How do you deal with this sort of owners? Do you avoid them completely? Would like to hear from you.

Moolah said...

:P

Life is full of choices, yes? :D

snowball said...

Ok, get it :)

But, what about those companies own by not-so-rich owner, like those mid-cap run by families. Since they only own one company, we do not have a record of whether they will do this kind of thing. Do you look at other stuff and what stuff do you look at?

Moolah said...

Some 'major shareholders' are said to treat their shareholders.

Well, how did they determine 'fair'?

Say the share is trading at 2.00. Company offers 2.80 for the share.

Well that's probably very extremely generous but does one judge fairnerss based on 'premium over traded share price'?

I'm sure you know that the premium over traded share price does not reflect the company's true worth?

Yes, what about the company's true value?

So in this said instance, what if the share should have been worth at least 5.00?

Would you regard this owner as being a generous majority shareholder?

Moolah said...

In general, the risk of takeovers will always exist for any kind of investment. The risk is simply there and sometimes it doesn't really compensate the investing risk taken by one to be a minority shareholder of the stock.

Risk is always there. Which is why if one embarks on a really 'long' term strategy, the integrity of the owners is utmost importance.

hhc1977 said...

yo,

very good article and i bet this will not be his last deal.

Is this what business school called Value-adding exercise?

Being small has an advantage in which we can vote with our feet quicker than others.

If we cant trust the owner, why invest in them...

Moolah said...

Quote: "If we cant trust the owner, why invest in them..."

Hehe.. you know.. that's the easiest thing to say but in the share market... somehow that statement proves impossible.

snowball said...

Hi Moolah,

Thanks for the explanation. Yup, agreed that we need to find someone with integrity especially if one is doing it for the long term.

Like the Bumi Armada case, no matter how undervalued the company is, it is not possible for the company to achieve fair value as Ananda tried to take it private fairly cheaply.

The thing I do not get as an inexperience investor is that, why so many people in our market thinks that it is the majority shareholder right to earn more than them. Like, if Ananda help them make RM1 per share even though Ananda himself is making RM2 per share, they think it is fine as long as they are making money.


Having said that, for a small fish like me, I find it very difficult to determine who to trust. Internet makes things easier, but, still pretty difficult to dig the background of the people that run those companies.

Moolah said...

The thing I do not get as an inexperience investor is that, why so many people in our market thinks that it is the majority shareholder right to earn more than them.

Well said.

And incredibly the market always forget the pass 'stunts' just cos of the stock name. ( The swamp land was incredible. :P )

Does the 'stock name' makes the stock 'investment grade'?

Having said that, for a small fish like me, I find it very difficult to determine who to trust.

There's no such thing as 100% fool proof strategy in the market and that includes the issue of trust.

Which is why ... that MoS issue is important... which is also why... sometimes despite us, the investor, wanting to be 'married' forever and ever to the stock, certain circumtances could happen and if it just doesn't make sense to continue to stay married... then... exit is perhaps the best logical strategy. ( Yeah I don't believe to follow 100% on what the books says one should do. Common sense is more important. :) )

solomon said...

What to do? If not will get kick out from Forbes listing???
Sending invitation of marriage for this company, many fund managers will come with big ang pow....

U don't trust me,some trust me leh...why?? Asset Strip off show...sure u want to in the party....

This is what I heard in kopitiam today....

Moolah said...

Does it matter what these 'some' want? Does it matter they even think?

LOL!

Some don't even have to be like these 'some'.

:)

Angel Stone said...

Hi admin,

sorry to put it here.But, really couldn't find your email.

I would like to request a blogroll link-exchange with you. Hope we can do this.

my blog: http://www.marketfutureoutlook.com


Regards...

Angel

Moolah said...

Angel: your link is up.

Mike said...

I would like your opinion on Amedia. I bought it recently at 31 sen because my remiser recommended it. I was told that Amedia is a super buy with a very good future. It will spread it's wings to Indonesia & Thailand & Singapore. It is a growth stock and is projected to list in the main board next year. The TP of $3 is easily reachable. However, my luck is not good. After I buy Amedia keeps falling. My remiser keeps asking me to average down. Should I? Can you please give your opinion on the stock?

Moolah said...

Claire Barnes: In reference to http://apolloinvestment.com/whatsnew.htm, I've send you a short email note.