This article first appeared in The Edge Malaysia Weekly on August 14, 2023 - August 20, 2023

STATE-owned investment fund Permodalan Nasional Bhd (PNB) is believed to be making a decision on its 65.56% stake in UMW Holdings Bhd soon, most likely this week, according to sources privy to the matter.

It is not known at press time what the decision might be — whether to merge the auto group with Sime Darby Bhd or sell the shares in UMW to other bidders.

At the point of writing, it is believed that merging UMW with Sime Darby would be the best move for PNB, as it will be able to streamline its investments in both groups.

UMW and Sime Darby share many similarities, apart from having a common largest shareholder in PNB and its funds. Both groups are in the automotive business as well as in the heavy machinery business.

Where they differ is in UMW’s presence in aerospace manufacturing and Sime Darby’s in healthcare business. It is worth noting that Sime Darby and its Australian partner Ramsay Health Care said in June that they were exploring a sale of their joint venture held under Ramsay Sime Darby Health Care.

Meanwhile, when approached, PNB declined to comment on the matter related to its interest in UMW, reiterating its position of not commenting on market speculation when The Edge broke the story in early June that it was considering a sale of its interest in the automaker.

Nevertheless, sources whom The Edge spoke to say a corporate exercise by PNB involving its investment in UMW is nigh on the cards.

A reason for the corporate exercise is the valuation of Perusahaan Otomobil Kedua Sdn Bhd (Perodua), which is not reflected anywhere because of its current shareholding structure.

“The objective is to list Perodua eventually. Its net tangible assets is about RM2 billion. The market capitalisation of both UMW and MBM Resources Bhd [a public-listed company that owns a stake in Perodua] does not reflect Perodua’s value,” says a source.

Perodua is a joint venture between Malaysian and Japanese entities, with no one party holding a controlling stake. Through wholly-owned UMW Corp Sdn Bhd, UMW owns 38% of Perodua, while Daihatsu Motor Co and its Malaysian outfit own a 25% stake.

MBM Resources owns a 20% stake in Perodua, while PNB through PNB Equity Resources Corp Sdn Bhd (PERC) owns 10% in the Rawang-based carmaker. Another Japanese entity, Mitsui & Co, owns the remaining 7%.

UMW had proposed to take over MBM Resources in 2018, but the latter’s largest shareholder, Med-Bumikar Mara Sdn Bhd, objected to the offer price of RM2.56 a share, which valued the company at about RM1 billion. Med-Bumikar Mara had a 50.5% stake in MBM Resources then.

UMW’s offer was for Med-Bumikar Mara’s stake, with the aim to privatise the company if the offer was accepted.

Majlis Amanah Rakyat (Mara) has a 29% stake in Med-Bumikar Mara, with the balance 71% owned by six founding families, including LT Wong (Holdings) Sdn Bhd.

In the 2018 attempt to privatise MBM Resources, it was reported that the Japanese entities opposed the deal because they were not agreeable to PNB — indirectly via UMW — controlling Perodua.

If the deal had gone through, UMW would have become the single-largest shareholder of Perodua, with a 68% stake, as it had also offered to take over PERC’s 10% stake in the carmaker.

A source whom The Edge spoke to regarding the current proposal says, however, that this time around, the Japanese have no objections to PNB’s corporate exercise in regards to its investment in UMW.

It must be noted that it is unclear at this point whether PNB would merge UMW with Sime Darby because at least five bidders have thrown their hats into the ring for PNB’s stake in UMW, according to the sources The Edge spoke to.

Apart from Sime Darby, it is learnt that Bermaz Auto Bhd and Mitsui are among the bidders that have indicated their interest in taking over PNB’s stake in UMW.

PNB and its funds collectively held 60.56% of UMW’s issued shares as at March 15, 2023, according to UMW’s 2022 annual report.

According to the annual report, PNB fund Amanah Saham Bumiputera (ASB) is the largest shareholder of the group, with 44.96% equity interest, while PNB itself owned a 4.08% stake in the UMW as at March 15, 2023. Other smaller, PNB-managed funds owned a collective 11.52% of the total UMW share base.

Meanwhile, PNB and the funds it manages owned a collective 49.92% interest in Sime Darby as at Sept 8, 2022, according to its 2022 annual report. PNB alone owned 6.14% of the shares in Sime Darby, while the largest shareholder then was ASB, with 39.61%.

PNB has recently embarked on a consolidation exercise of its investments, with the merger of Malaysia Building Society Bhd (MBSB) and Malaysia Industrial Development Finance (MIDF). PNB sold wholly-owned MIDF for RM1.01 billion to MBSB in exchange for a 12.78% stake in MBSB. The merger is expected to be completed in September.

Asked about its plans for its investments in local equities, PNB says its overarching goal is to drive investment growth and deliver favourable returns for its stakeholders.

“Any specific plans for PNB’s equity portfolio would be aligned with its investment objectives and to enhance value creation,” says PNB in an email response to The Edge’s questions on Aug 10.

As at Aug 11, UMW was trading at RM4.27 apiece, valuing the group at RM4.99 billion. Year to date, it has risen 23.77%.

Meanwhile, Sime Darby was trading at RM2.15, valuing the group at RM14.72 billion. Year to date, the counter has lost 2.27% of its value. 

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