In light of Bandar Raya Asset Sale: Yet Another Ludicrous RPT Transaction, I remembered what I wrote back on July 2011 in the posting: Just Another Feedback On Corporate Governance
One of wish was on Related Party Transactions (RPT).
- And I want to see more done on the issue of related party transactions ( RPT ). Nowadays, related party transactions seems to be increasing more and more. It's rather shocking and sometimes I wonder how the company manage to get the votes of approval for all these transactions. I have seen so many listed companies with so many RPTs that it so unreal. Why do these major shareholders have links to almost most of the transactions done by the company?
And I think it's time we revisit another past case involding MMC and Senai Airport
The issues (as highlighted in the local papers then) involving this deal:
- Based on the announcement, MMC has undertaken to advance RM417.2 million which is owed by SATS to the vendors. The vendors in the deal are Semarak Sestu Sdn Bhd and Suria Kemboja Sdn Bhd which own SATS. Both companies are believed to be linked to MMC’s major shareholder Tan Sri Syed Mokhtar Albukhary....
- In the first place, does MMC need more land? Even if it does, why must the deal be done now, especially in cash? Is it necessary for MMC to undertake the deal at this juncture when asset prices are fast coming down?
- When will Senai Airport and the land around it contribute to the bottom line of MMC positively? Also, what is the true valuation of Senai Airport and land that comes together with it?
- The unaudited net tangible asset (NTA) of the SATS Group and loss after tax as of June 30, 2008 are RM295.5 million and RM24.8 million.
- The proposed purchase of the 2,718 acres for RM9.45 per square foot (sq ft) is also questionable.Based on previous reports, the land was acquired from Lee Rubber at less than RM3 per sq ft. Now it is sold for three times the amount transacted less than two years ago.
- Why does it need more long term assets?
- Without strong cash flow, MMC will be sitting with a lot of assets but no cash to develop them.
There was this one nice table published on Star papers.
The very glaring part was SATS was MMC forecasted SATS to make some 93.3 million for its fy 2010!
Needless to say I was shocked since SATS was losing money all the while and minute MMC suggested that they wanted to do this RPT deal, SATS suddenly was forecasted to make a whopping 93.3 million. ( Later on this issue)
Oh yeah, they claim that minority shareholders would be protected because they would be advised by the GOOD independent advice circular provided by 'independent investment advisor'. And for this deal, Hwang DBS advice was highlighted in the posting: Hwang-DBS Advises MMC Shareholders To Vote For SATS Purchase???
Hwang DBS decided to use implied price per passenger as one of their yardsticks to justify this RPT!
Price per passenger? ( Huh? Exactly! )
I guess with SATS having a history of losses, they ran out of yardsticks to use. Yeah, a loss making company was sold for 1.95 Billion.
And MSWG did try to fight against this clear lopsided deal. See MSWG Gains Vital First Victory In Its Battle Against MMC's Senai Airport Terminal Purchase
But sadly... Another Sad Day For Corporate Malaysia As MMC's Senai Airport Deal Is Approved!
Let me highlight an article on Business Times back then.
- MMC shareholders say Yes to Senai Airport deal
By Adeline Paul Raj Published: 2009/03/21
MMC Corp Bhd's (2194) shareholders approved its controversial plan to buy Senai Airport Terminal Services Sdn Bhd (SATS) for RM1.7 billion despite strong objection from minorities.
At an extraordinary general meeting (EGM) yesterday, which dragged on for four hours, minority shareholders were vocal, making it clear they were against MMC paying such a hefty price in the related-party deal.
MMC is owned by Tan Sri Syed Mokhtar Al-Bukhary, who is also a shareholder in SATS.
"The minorities were very unhappy and almost wanted to stage a walkout. But we managed to tell them not to do so, and vote," said Minority Shareholder Watchdog Group (MSWG) chief executive officer Rita Benoy Bushon, who attended the EGM.
Bushon said the MMC chairman had invoked his discretion to have a poll instead of a vote by hands and, in the end, 97 per cent voted in favour of the deal.
This was because minority shareholders were few in number. The majority of the non-interested parties who could vote on the deal comprised institutional investors.
MMC is to pay RM580 million for SATS' loss-making Senai Inter-national Airport and RM1.12 billion for land which will be developed as an "airport city".
"I'm not against them buying SATS; it's just the price. It's a valuation argument, that's all," a minority shareholder said.
He, and others, was irked that valuations were based on projected values rather than the current value.
Some felt that MMC, which has some RM20 billion debt, should be preserving its cash now that the economy was slowing down. Others felt that it should wait for a better price.
For MMC, the buy enables it to exploit SATS' potential to become a regional cargo and logistics hub.
MMC chief executive officer Hasni Harun did not face the press yesterday, but in a statement reiterated that the SATS purchase was commercially viable and in the long-term interest of the group and stakeholders.
"With this, MMC will own the only privatised airport in the country and it will create value to the group's transport and logistics business," he said.
Asked if she was happy the deal would go through, Bushon replied: "I had expected that the board would have somehow looked at the valuation again."
She said the board had given assurance, however, that it would be accountable for the purchase. The deal is expected to be accretive in two years.
Today, I would like to focus on the very last passage.
- She said the board had given assurance, however, that it would be accountable for the purchase.The deal is expected to be accretive in two years.
That was March 2009.
Today, its Sep 2011.
It's more than 2 years since this deal took place.
Here's MMC Q4 earnings posted on March 2009: Quarterly rpt on consolidated results for the financial period ended 31/12/2008. MMC had net profit of 527.319 million then.
So after this deal... surely MMC earnings would improve yes?
After all, MMC did say that they said SATS could be earnings some 93 million for its fy 2010.
So this is MMC earnings reported on Feb 2011: Quarterly rpt on consolidated results for the financial period ended 31/12/2010 MMC's net profit? 344.940 million.
I then looked at MMC's segmental earnings. I was curious to find out SATS contribution to MMC. From the pdf file attached to that Feb 2011 quarterly earnings:
I guess SATS is classified under 'Transport and logistics'.
But then MMC also has its own port business and also Smart. And these would probably be classified under as 'Transport and logistics' business too. ( Err... not very clear, yes? )
I then proceed to search its Annual Report.
And I am glad to say the info is there and Senai Airport is indeed not losing money.
Quote: "The company recorded a PAT of RM63.2 million, due to the recognition of a substantial deferred tax income during the year."
Ahem... back in 2009, MMC promised 93.3 million in profits from SATS.
Well, no matter what's said here again, this related party transaction, worth some 1.95 billion is a done and dusted deal.
But then I thought about it...
The current corporate governance feedback seeked by SC came to mind.
I am confused.
They keep asking for feedbacks but what good is feedback without ENFORCEMENT of corporate governance?
We can have all the nice blue prints and feedbacks... but what's most important is... I want to see action la.
Can ah? Can I wish for better ENFORCEMENT?
That's not asking too much, yes?
We have all this guidelines and rules but if the enforcement isn't there, then what's the point?
Think about it....
Current Bandar Raya current attempt to do a related party transaction involving its chairman and its key prime assets.
Board is given one week to accept the offer.
But... no price is stated.
Like this also can?
PS: Just in case, you have better feedbacks, email your opinions and views to Gblueprint@seccom.com.my. You need to do this by 15 September 2011.
Or if you prefer to send in writing, mail it to:
CG Blueprint Team
Securities Commission Malaysia
3, Persiaran Bukit Kiara, Bukit Kiara
50490 Kuala Lumpur, Malaysia