This article first appeared in The Edge Malaysia Weekly on October 18, 2021 - October 24, 2021

PERMODALAN Nasional Bhd (PNB) — one of the country’s largest fund management companies, with assets under management of RM322.6 billion in 2020 — is placing out some of its shares in Sime Darby Bhd and IHH Healthcare Bhd to raise between RM350 million and RM450 million cash, according to a source familiar with the matter.

However, it is not known at this point to whom the shares will be sold and the quantum of shares in each company that will be placed out.

When asked to confirm the stake sales, a PNB spokesperson said the fund does not comment on such matters.

“With reference to your enquiry on information regarding PNB’s shares in Sime Darby and IHH Healthcare, we wish to inform that as a matter of policy, PNB does not comment on market rumours or speculation,” he said in an emailed response to The Edge.

PNB is the largest shareholder of Sime Darby, which has a myriad business segments ranging from heavy equipment and automotive to healthcare and logistics.

According to Sime Darby’s annual report for its financial year ended June 30, 2020 (FY2020), PNB’s shareholding in the company stood at 3.6 billion shares, or a 53% stake.

By comparison, the fund has a far less substantial interest in private hospital operator IHH Healthcare — which counts Japan-based Mitsui & Co Ltd, sovereign wealth fund Khazanah Nasional Bhd and the Employees Provident Fund as its largest shareholders, with stakes of 32.9%, 26.02% and 8.63% respectively.

PNB’s equity interest in IHH Healthcare stood at 6.01%, or 527.9 million shares, as at Dec 31 last year.

Sime Darby’s share price had risen 1.7% year to date to close at RM2.31 last Friday, giving the company a market capitalisation of RM16 billion. IHH Healthcare’s share price rose 22% over the same period to close at RM6.72, valuing the company at RM59 billion.

At these prices, every 1% shaved off its Sime Darby stake could see PNB pocketing RM160 million. Assuming that the fund were to raise about RM400 million, it would only need to part with less than half of 1% of its stake in IHH Healthcare to generate the remaining RM240 million. And even if PNB chose to shave off 2% of its stake in Sime Darby and raise about RM320 million, it would not lose control of the company given its position as the largest shareholder.

Both Sime Darby and IHH Healthcare have been profitable investments for PNB. Sime Darby reported a 74% year-on-year (y-o-y) increase in net profit to RM1.43 billion on the back of a 20% increase in revenue to RM44.48 billion for FY2021, thanks to its motors division’s exceptional performance in most markets, particularly in China.

As for IHH Healthcare, it swung back into the black in the first half of its financial year ended June 30, 2021 (1HFY2021) with a net profit of RM858.93 million from a net loss of RM440.43 million in 1HFY2020, while revenue grew 34% y-o-y to RM8.22 billion, as the number of patients increased at its hospitals after the major lockdowns last year due to the Covid-19 pandemic.

The last major divestment in a public-listed firm by PNB was in November last year, when it disposed of its entire 56.3% stake in chlor-alkali and polymer coating products manufacturer Chemical Company of Malaysia Bhd (CCM) to Batu Kawan Bhd for RM292.8 million.

The divestment at RM3.10 per share was a significant premium of 69% to the three-month volume weighted average share price of CCM at the time. The sale triggered a mandatory general offer by Batu Kawan for the remaining shares in CCM that it did not own. CCM was subsequently taken private by Batu Kawan and delisted from the stock exchange in February this year.

During the period when CCM was one of PNB’s strategic companies, it had undergone various exercises including the demerger of CCM Duopharma Biotech Bhd from CCM in 2017. PNB said then that the divestment of its equity interest in CCM to Batu Kawan was part of its asset diversification strategy to rebalance its portfolio.

While it remains to be seen what PNB’s intention is to dispose of its stakes in Sime Darby and IHH Healthcare, the fund has continued to deliver decent returns to its unit holders. The income distribution of its unit trusts in 2020 continued to outperform fixed deposit rates of 1.85% to 2.61%, with returns of 4% to 4.75%.

Domestic public equity remained the largest asset class contributing to PNB’s gross income at 46.3% in 2020, while foreign public equity contributed 25.5% and fixed income, 8.4%.

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