More On MMC And Its Senai Airport Terminal Purchase!

Posted earlier: MMC And Its Senai Airport Terminal Purchase!

Just saw this article on TheEdgeDaily. It's excellent!

• 10-12-2008: Institutional shareholders should scrutinise Senai deal
  Commentary by M Shanmugam
  
  As the economy skids, companies are conserving cash to weather the storm ahead. Some have called off deals to buy property, and they included IOI Corp Bhd which in the process lost a deposit of RM73 million.
  
  On the other hand, others such as YTL Corp have splurged billions scooping up power generation and property assets in Singapore.
  
  MMC Corp, it appears, is following the YTL example by proposing to pay RM1.7 billion cash to acquire Senai Air Terminal Services Sdn Bhd (SATS), which holds Senai Airport and 2,718 acres of land around the Senai Airport.
  
  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.
  
  Last week, MMC announced that the price tag for the airport and land had been reduced from RM1.95 billion to RM1.7 billion. With the reduction in price, the proposal is to be transacted in cash as opposed to shares previously.
  
  Irrespective of whether the deal is done in cash or shares, there is every reason for minorities to scrutinise the proposal.
  
  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?
  
  To be sure, YTL Corp splurged S$4.3 billion (RM10.33 billion) gobbling up assets in Singapore over the past one year. But then, MMC’s coffers are nowhere near YTL’s level. Also, the quality of assets that YTL has scooped up makes it likely that they will contribute to its earnings in the next one year or so.
  
  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?
  
  Let’s take a look back. In 2003, Malaysia Airports Holdings Bhd (MAHB) sold the airport, which comprised a runway measuring 3.3km in length and one passenger terminal that is able to accommodate 2.5 million passengers per annum. The previous year, Senai handled 874,278 passengers, 28,759 aircraft movements and 3,849 tonnes of cargo.
  
  When MAHB sold the airport and its operations for RM80 million, the unaudited net book value of Senai Airport was RM76.8 million while the turnover and operational losses were RM8.8 million and RM300,000 respectively.
  
  According to MMC’s announcement, Senai Airport is situated on a 1,226-acre site, has a 3.5km runaway and nine aircraft parking bays, four of which are connected to the terminal.
  
  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. SATS has commenced the construction of an aero mall which will include a hotel, restaurants and entertainment facilities.
  
  The airport and its operations are now valued at RM580 million. On what basis has the value increased to RM580 million? Even if the work in progress on the aero mall is worth that much, does MMC need such assets?
  
  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. The status of the land has probably been converted from agriculture to industrial.
  
  But MMC does not need that piece of land, especially now. It is a long term development and MMC already has enough long term projects in its hands now. It has its hands full with the Port of Tanjong Pelepas and the Jizan Economic City in Saudi Arabia.
  
  Why does it need more long term assets?
  
  MMC used to be majority owned by Permodalan Nasional Bhd. It was an asset rich company and concentrated mainly on natural resources. Today it is majority controlled by Syed Mokhtar and its cash flow is mainly from Malakoff Bhd, an independent power producer (IPP).
  
  Both the port and Malakoff are operating in regulated environment where things can change and affect cash flow. The Senai Airport and the land around it is something that requires a lot of capital before it pays off. Without strong cash flow, MMC will be sitting with a lot of assets but no cash to develop them. Worse still, there will be no dividend pay-outs.
  
  If PNB and other institutional shareholders do not stop the deal, they only have themselves to blame.
  

Source: here


Oh, PNB do you see what the market is seeing?

Do you?