Here's a well written editorial from Errol Oh on Star Bizweek.
- Saturday October 11, 2008
When less is best
BY now, we should be accustomed to AirAsia Bhd notching up the first this and the first that. It’s a company that prides itself on being a pioneer and an innovator. Last week, the low-fare airline yet again did something unprecedented, but it was more of a baffling development than a milestone of distinction.
In response to a newspaper article on its possible privatisation, AirAsia confirmed on Tuesday that major shareholder Tune Air Sdn Bhd was thinking of taking such a step.
Apparently without being prompted by the usual query from Bursa Malaysia, AirAsia had verified the report with Tune Air. Not that it was a difficult thing to do. AirAsia’s top two executives, Datuk Seri Tony Fernandes and Datuk Kamarudin Meranun, also control Tune Air.
The carrier said it had been informed that Tune Air was “continually exploring various options on how best to optimise and expand the operations of (AirAsia), especially in current times, given the volatility of fuel prices, business environment and the financial and capital markets”.
That’s basically the first half of the announcement. Typically, that’s about all shareholders would openly say about privatisation plans that are still on the drawing board. However, Tune Air had given AirAsia more information, which in turn was made public by the latter.
Said AirAsia in the Tuesday announcement: “One option being considered by Tune Air is a potential privatisation exercise of AirAsia at an indicative price of about RM1.35 per AirAsia share, which is subject to change depending on the market conditions at the point of decision.
“This option is still being developed and it must be emphasised that this option is subject to the availability of financing on acceptable terms from financial institutions and other potential investors in these challenging times, as well as conducive market and industry conditions.
“An appropriate announcement will be made when Tune Air has formed a firm intention to proceed or not.”
Market watchers agree that AirAsia’s announcement was a first for corporate Malaysia. The singling out of privatisation as a possibility is already a rarity, but the mention of a price has really got people talking. This is not just price-sensitive information €“ it’s price-specific.
AirAsia can argue that it was merely being transparent when it volunteered these details, but here’s a case when less is best.
In fact, the airline has not done the investing public any favours by saying too much about Tune Air’s interest in taking it private.
Few things excite the stock market more than the possibility of a general offer (GO), which normally paves the way for a privatisation. The idea of one very willing buyer agreeing to pay cash for all the shares at a fixed price is potent.
We are used to hearing rumours about GOs, but it’s another matter when a company that may be privatised, particularly one run by the potential offerors, announces the indicative offer price. It’s practically a statement of intent.
AirAsia closed on Tuesday at RM1.27. Under ordinary circumstances, the information on the possible privatisation would have almost certainly lifted the share price closer to RM1.35. However, stock exchanges around the world had a miserable time last week and Bursa Malaysia was no exception.
On Wednesday, AirAsia shed 1 sen and the following day, it lost another sen. The depressed investor sentiments may have thwarted a surge in the counter, but in the minds of some investors, the announcement has established a floor for the share price.
Sure, the announcement also includes a caveat, but that’s a frail counterweight to the perceived promise of a GO at RM1.35 a piece. Besides, the warning wouldn’t even be necessary if the price was not revealed in the first place.
Should we view this episode as a misreading of what listed companies should and shouldn’t tell the market?
Bursa Malaysia’s listing requirements ought to be the first point of reference. Broadly, the corporate disclosure policy says the companies must disclose to the public all material information necessary for informed investing.
This is broken down into six specific policies, and the one that covers the AirAsia announcement calls for an immediate response, including making due enquiry, to rumours and reports that contain material information.
The exchange says that if the information is correct, the company must make a statement setting forth the facts. The statement should “include but not be limited to, an indication of the state of negotiations or of corporate plans in the rumoured area”.
Based on this, it’s enough for AirAsia to report only that Tune Air is considering the option of privatising the airline.
It’s a stretch to believe that AirAsia would have been in violation of the disclosure policy if it had not mentioned the indicative price for the privatisation.
In the end, it’s also about taking a commonsensical approach. Do investors and minority shareholders benefit from being told the price, considering that it is a moving target and that it is possible that the exercise may not materialise? In fact, it may even lead to investment losses if Tune Air’s plans change.
For that matter, what was it that compelled Tune Air to provide AirAsia with the price? Tune Air is not bound by Bursa Malaysia’s listing requirements, and it can stand by the reasoning that it ought to withhold the price until it actually makes the GO.
In addition, by showing its hand prematurely, Tune Air risks having to pay more for the shares. Why go down this road?
It was last Tuesday as well when the Melewar group said it was looking at privatising insurer MAA Holdings Bhd (MAAH). Tunku Datuk Ya’acob Tunku Abdullah was quoted as saying he would “definitely consider doing a voluntary GO for MAAH”.
He is a substantial shareholder of Melewar Equities (BVI) Ltd and is also MAAH executive chairman. Last month, Melewar Equities launched a GO for oil and gas company M3nergy Bhd.
Another article quoted Tunku Ya’acob as saying, “Should I do a general offer on MAAH, the answer is yes, I should do a GO on MAAH because it is very cheap (trading) at 60 sen per share with its NTA (net tangible assets) at about RM1.50.”
Following the news reports, MAAH issued a statement through Bursa Malaysia on Thursday that it couldn’t comment on Tunku Ya’acob’s remarks because he was overseas,
It added, “The board (of directors) is only able to comment after it has made due enquiries with the major shareholder. Steps are being taken by the board to seek clarification on the statements made by the major shareholder.”
With our share prices battered by the economic and political uncertainties, it’s again the season for GOs and privatisation exercises.
It’s also a time for Bursa Malaysia to send out the message that such moves should not be marred by careless statements that may hurt investors.
Source: http://biz.thestar.com.my/bizweek/story.asp?file=/2008/10/11/bizweek/2221997&sec=bizweek
Well said Errol! It's sure is baffling!!!!!!!!!!!
- Do investors and minority shareholders benefit from being told the price, considering that it is a moving target and that it is possible that the exercise may not materialise? In fact, it may even lead to investment losses if Tune Air’s plans change.
I fully agree with what Errol is saying here.
Well isn't this basically a deal where the left hand (Tune Air) says it was thinking of a plan to take right hand (Air Asia) private!!!!!!!!!!! (Both Air Asia and Tune Air have the same bosses!)
Well... I can think of so many things in my life and I am sure that the janitor downstairs also can. However, most of the time we don't mumble out extremely loud of what we think of.
From a simple business perspective, surely from a Tune Air perspective, there has to be monetary benefit from taking Air Asia private, yes?
Think of it.. if no money can be made from this exercise, why bother then?
Which sane people would want to embark on a corporate exercise that has ZERO monetary value, right?
Yes?
So if Tune Air sees monetary benefit from this GO exercise, why bother with SHOUTING OUT LOUD the GO price? Why? Why? Why?
Does it make any sense?
And with such an exercise, surely many would accuse Air Asia of trying to create an artificial price support for the stock. By naming out the price, aren't they telling in an indirect manner not to thrown this stock, especially so in a plunging global market?
And is Air Asia even worth 1.35? Is it?
Look at their balance sheet.
It has a cash balance of 1.084 Billion but its total debt stands at 5.397 Billion!
And worse still as stated in Air Asia last reported quarterly earnings..
- The entire borrowings are denominated in US Dollar and Euro. The Company has substantially hedged its foreign exchange exposure through formal foreign exchange contracts
And what's wrong with loans denominated mainly in USD? Well the USD is appreciating against the RM. Which will mean more forex losses for Air Asia. ( For its last reported earnings, Air Asia reported that it lost 76.885 million in forex losses!)
And what's even more mind boggling is that Air Asia has capital commitment of 25.848 Billion to purchase new air crafts!!!!
And how much did Tune Air said GO price was?
Yeah.. thinking about it.
Well.. I can think of so many things.. and I am so very sure that you also can!
And what do you think of..
- It’s also a time for Bursa Malaysia to send out the message that such moves should not be marred by careless statements that may hurt investors.
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