PMI's rescue package

I found the following article from the Edge Weekly extremely interesting: 17 Dec 2007: Corporate: Khoo forks out RM150 mil to save PMI. My comments will be in purple fonts.

17 Dec 2007: Corporate: Khoo forks out RM150 mil to save PMI
By Risen Jayaseelan

Pan Malaysian Industries Bhd (PMI) is inching closer to extricating itself from dire straits. The plan that Tan Sri Khoo Kay Peng has put in place for the PN17 status company involves him injecting more than RM150 million of his cash into it.

The money will be used to reduce PMI's debts and acquire properties that will give the company a stable income.

"Khoo is putting his money where his mouth is. PMI's restructuring is unlike others where asset injections or paper shuffling are involved. This is hard cash that is being injected in and indicates the seriousness of the owner to make things better for his company," notes an investment banker.

Last week, PMI submitted a revised restructuring plan.

"This, together with the fact that Khoo — the ultimate shareholder of the MUI group, which PMI is part of — is underwriting a share sale exercise by PMI means the restructuring plan has a high chance of being accepted by the authorities," another banker says.

The exercise involves PMI selling shares it owns in Malayan United Industries Bhd (MUI) to its (PMI's) shareholders. PMI currently has a 46.56% stake in MUI. It intends to reduce that to 20% by selling 26.56% of its stake.

( Ok... PMI is selling its stake in MUI back to PMI shareholders. This is why I find it so strange, cos PMI as stated, currently holds a 46.56% stake in MUI. Why sell it back to PMI? Why can't MUI sell it to other parties? Does PMI shareholders even want MUI shares? )

Khoo's portion alone is RM50 million, but since he is underwriting the offer, he could potentially end up spending RM154.6 million on the MUI shares.

Khoo controls 32.4% of PMI and only has a 2% direct stake in MUI. With his stake in PMI, Khoo is entitled to purchase 8.3% of MUI under the share sale agreement. If Khoo only takes up his portion, his direct stake in MUI will increase to 10.3%, and with PMI's remaining stake in MUI, he will be deemed to control about 30% of MUI.

Khoo's deemed stake in MUI could rise further and perhaps even trigger a mandatory general offer for MUI shares if PMI shareholders do not take up the offer. (This is because Khoo is underwriting PMI's offer for the sale of the shares.)

Two weeks ago, PMI announced it had secured the High Court's order for a par value and share premium reduction. Getting the court order for this is a necessary step before other aspects of PMI's restructuring can kick in.

Here's what PMI is essentially planning to do: It wants to shrink its share capital by 90% and reduce its share premium account of RM265.6 million. The next and more substantial step is to make a restricted and renounceable offer for sale of 515.4 million shares in MUI to its (PMI's) shareholders. This will be done at an indicative price of 30 sen, although it may be higher if MUI's share price appreciates closer to the fruition of the proposed sale.

Of the RM154.6 million that will be raised from the share sale, RM84 million will be used to reduce PMI's borrowings from RM207.7 million currently to RM123.7 million. If the shares are sold at a higher price, more money will be raised and more of PMI's debts will be settled.

The proposal states that RM50 million from the proceeds will be used to buy properties that will become "a new area of activity for PMI". These new properties are to generate rental income and positive returns for the group.

The first property is Menara PMI, a 15-storey building in Jalan Changkat Ceylon. Ten storeys of this building are occupied by offices while the first five storeys comprise a retail podium and two basement car parks. The building has a net lettable area of 104,011 sq ft and 87 parking bays. Almost 96% of the building has been tenanted to various companies within the MUI group. It recorded an approximate rental income of RM4 million per annum last year. The vendor of the property, another MUI group company, Pan Malaysian Holdings Bhd, acquired the building in 1994 for RM35 million. The property had a net book value of RM28.9 million as at Dec 31, 2006.

PMI is forking out another RM10 million to pay MUI Properties Bhd for 1,478 sq m of land located along Jalan Mayang, near Jalan Ampang, Kuala Lumpur. The plot lies between two high-end condominiums, Mayang Court Kondominium and D'Mayang Kondominium. MUI Properties bought the land in 1995 for RM1.9 million and the net book value of the property is RM2.4 million. Both properties have been valued by credible valuers.

However, the question is, why is PMI buying properties from within the MUI group? Could PMI not buy other land with the money it is raising?

( Again, I find it so complicating. One on hand, PMI is selling its stake in MUI to its PMI shareholders. And then, PMI is buying properties from MUI Prop. ????? Errr.... say what? I am lost here!)

A banker familiar with the proposal says as far as PMI is concerned, the properties have a lot of potential. "Hence, the source of the land shouldn't matter. What matters is Menara PMI will provide stable rental income while the land provides growth potential," he says. It is understood that the land will be used by PMI to put up a high-end condominium project, considering its strategic location. If done successfully, PMI could reap the necessary earnings to breathe life back into the company.

>>>>>>>>>>>>>>

Anyway.... the first line, PMI is inching closer to extricating itself from dire straits.

I decided to have a peep at what PMI has done as a stock

May 2000. PMI had a Rights Issue

• Renounceable rights issue of 978,421,500 new ordinary shares of RM0.50 each with 978,421,500 warrants attached at an issue price of RM0.55 per share, payable in full upon acceptance, on the basis of one (1) new ordinary share with one (1) warrant attached for every one (1) existing ordinary share held in Pan Malaysian Industries Berhad at 5.00 p.m. on 23 June 2000

Let's look at the quarterly earnings posted at Bursa. (links are clickable)

30th May 2000: Quarterly rpt on consolidated results for the financial period ended 31/3/2000

PMI reported a loss of 8.596 million for its fy 2000. (previous year, it lost 222.790 million)

30th May 2001: Quarterly rpt on consolidated results for the financial period ended 31/3/2001

PMI reported a loss of of 96.548 million.

23rd May 2002: Quarterly rpt on consolidated results for the financial period ended 31/3/2002

PMI reported a loss of of 384.254 million.

29th May 2003: Quarterly rpt on consolidated results for the financial period ended 31/3/2003

PMI reported a loss of of 510.411 million.

4th June 2003: Another rights issue: Rights Issue

• The ratio of the Rights Issue of two (2) Rights Shares for every five (5) existing ordinary shares of RM0.50 each in PMI held on the Entitlement Date as stated above is based on Scenario I (as defined below) for illustrative purposes only. The final basis of the Rights Issue will be determined immediately after the Entitlement Date depending on the number of Warrants exercised on or prior to the Entitlement Date under Scenarios I, II or III (as set out below).

21st May 2004. Quarterly rpt on consolidated results for the financial period ended 31/3/2004

PMI reported a loss of of 83.878 million.

20th May 2005. Quarterly rpt on consolidated results for the financial period ended 31/3/2005

PMI reported a profit of 102 million.

9th March 2006. PMIND-Classification as a new PN17 Company

31st May 2006. Quarterly rpt on consolidated results for the financial period ended 31/3/2006

PMI reported a loss of of 172 million.

30th May 2007. Quarterly rpt on consolidated results for the financial period ended 31/3/2007

PMI reported a loss of of 123 million.

Not an impressive track record, yes? And if not mistaken, PMI had a rights issue back in 1998 too!

My...