Tuesday, June 14, 2011

Do You Want Bumi Armada's IPO?

 Some simple facts when Bumi Armada was TAKEN PRIVATE back in 2003. 

  1. Bumi Armada had an eps of RM 1.01 per share
  2. Bumi Armada had a growth rate of 25% per annum.
  3. Bumi Armada was delisted at rm 7.00.
  4. That's an PE multiple of 7x based on CURRENT earnings.
  5. With a growth rate of 25% per annum, Bumi Armada's eps would hit RM 1.97 per share within 3 years.
  6. And the EPS would double to RM 2.46 per share by the 4th year.
  7. Using a price of 7.00, the stock WAS TAKEN private with a pe of 3.55x using a 3 year forward earning.

Yes, that was how CHEAP Bumi Armada was delisted via a privatisation exercise.

Many felt robbed!

But now Bumi Armada is GOING to be relisted on the stock exchange again.

Incredible isn't it?

Companies can easily list and delist and list again in Bursa Malaysia.

Doesn't this make a total mockery of the stock exchange?

Why our stock exchange so no class? Why allow stocks to list, delist and list again? Main masak-masak ah?

Mentioned in the blog posting: How Will Previous Shareholders Feel About Bumi Armada's Re-Listing?

  • 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.
Think about it.

If you are a long term investor, how?

Think about it once again. Stock moves up and down. What if, in the future,  when the stock moves down, the company decides to pull off the same stunt all over again? Not possible?

Yes, what if, in the future, the company decides to take the company private at a cheap price, as we had witnessed back in 2003?

Is that not possible?

Would you want to take such a risk?

Do you want to give the company a chance to make a fool out of your money again?

Ok. I, understand, many 'IPO investors' are merely speculators who subscribes to the IPO hoping the stock would jump on listing day.

It's an open strategy - which I would not criticise at all. It's not for me to comment on how one attempts to make money from the market.

However, recently, the past few IPOs aren't hot!

IPO investors and speculators are hit badly with plunging IPOs. For example? XOX Plunged 35% On Listing Day! And what was most annoying was that despite the stock opening significantly lower than its IPO price and continued to plunge after that. the major shareholders Of XOX were photographed laughing happily while pointing at a screen which was displaying the stock trading at a loss and of course, this triggered the usual Blame Game on the local press.

Some comments stood out.
  • New listings on Bursa Malaysia are failing to gain premium in the market because their valuations are overstretched in the first place, merchant bankers who spoke on condition of anonimity said yesterday.

    Recent IPOs such as XOX Bhd, UOA Development Bhd, MCLean Technologies Bhd and Ideal Jacobs (Malaysia) Corp Bhd struggled to gain premiums on their debut or struggled to maintain their momentum.

    "For most of the initial public offers (IPOs) coming out in the market now, the valuations were done at least three or four months ago, when the appetite for risk was much greater," said a merchant banker who has worked directly on a couple of IPOs earlier in the year.
Yeah, they admitted it.

That because the demand was there or the appetite for risk, IPOs were priced at a premium with overstretched valuations.

And would this not best reflect the Bumi Armada relisting?

The company, which had a 25% per annum growth, was taken private using a CURRENT earnings valuation.

And how does the stock wants to be relisted? Let me quote again:
  • 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.
Won't you say that stock is priced at a premium?

Won't you?

ps: Again this reminds me of this one statement made: 'When stocks are taken private, the minority shareholders are offered the cheapest possible valuation but when stocks are listed, they WILL be sold to the prospective investors at a premium price!'

And on yesterday, the CEO made an incredible statement on Business Times:  Buoyant outlook for Bumi Armada
  • We are going to the capital market to have a good dose of equity. We believe this exercise will help to grow the company further," said director and chief executive officer Hassan Basma in Singapore.


That's very nice of the CEO to tell the investing public that they are going to the stock market to be listed so that they can get a good DOSE of liquidity (Money!!!!)

And Bumi Armada's preliminary prospectus is already loaded on SC website.

The following pdf file is interesting: http://www.sc.com.my/eng/html/Prospectus/pdf/Armada/Pg11_Financial_info.pdf

Page 9 of the pdf file:
  • We have and will continue to have a significant amount of borrowings. As at 31 December 2010, our total borrowings stood at RM3,418.9 million (including RM1.2 million of hire purchase). Our ability to service our debts and other contractual obligations will depend on our future performance and cash flow generation, which in turn will be affected by various factors, many of which are beyond our control.

    As a result of our indebtedness, we are exposed to interest rate risk, primarily from borrowings bearing variable interest rates to the extent that our exposure to floating interest rates remains unhedged by interest rate swaps.
And isn't this great?
When Bumi Armada was delisted back in 2003, it was only carrying some 148 million in debts. (you can verify that fact by clicking Barmada's quarterly earnings report here - data from word file attached)
Now it's carrying some 3.4 BILLION in debts, it wants to get a good dose of liquidity, a good dose of money by relisting!
Now, isn't the stock market a great place to get money?
So how?
Do you want Bumi Armada's IPO?
ps: I have no idea how the stock will trade on its relisting but I certainty DO NOT want to be an investor of this company. The stock can double or triple in the next years but such opportunity is NOT an opportunity at all for me. Yes, it won't bother me a single bit if I miss out and neither would I jump for joy if the stock tanks! I am just NOT interested. :)


limko said...

Debt is to be socialized by getting the public to subscribe to IPO, thus sharing the debt burden and risk; while wealth is to be privatized by taking the company private in good time.

It is called having the cake and eat it too. Sorry, suckers!

Now we know the new meaning of listing in Bursa!

Moolah said...

Well said!

And sadly.. no matter what I write ... there will be those who will more than willing to take a chance on bet on the IPO.

Yan Cheng Cheok said...

Dear Moo Moo,

Enjoy your reading! Do you want to write some about the upcoming MSM? Sugar sugar yum yum.

ronnie said...

Dear Moola. Thank you for doing a fine job pointing out where the landmines are on Bursa. AK cannot be faulted for taking Bumi Armada private. The share was grossly undervalued. AK did not do anything illegal & unprincipled.

This huge disparity in price & value will create tremendous opportunities for value investors & private equity funds. There are many gems in the small market cap category - Delloyd, Freight Mgt, etc.

Moolah said...

Cheok: If I write on MSM, it would be as if I am giving investment advice and this is something I am not known to be able to do.