This article first appeared in The Edge Malaysia Weekly on January 15, 2024 - January 21, 2024

THE change in JAG Capital Holdings Bhd’s offer to buy out KUB Malaysia Bhd — from a voluntary takeover offer (VTO) to a mandatory takeover offer (MTO) — is perplexing. This, coupled with the change in payment mode to take over Central Cables Bhd (CCB), may make one wonder if there has been a change in JAG Capital’s plans for KUB.

When met at the Malaysian Palm Oil Board (MPOB) Palm Oil Economic Review and Outlook Seminar 2024 last Thursday, Datuk Seri Johari Abdul Ghani — the major shareholder of JAG Capital with a 98.75% stake — insisted that the latest development was in accordance with initial plans announced prior to his appointment as the Minister of Plantation Industries and Commodities about a month ago.

Still, the amendments have prompted investors to wonder what the businessman’s endgame is.

Why did JAG Capital mop up KUB shares to trigger a conditional MTO for KUB shares within two trading days of making a VTO?

Indeed, the sequence of events is puzzling.

Last November, KUB proposed to buy 86.65% equity interest in power cable manufacturer, CCB, from JAG Capital. The acquisition, which would have enabled KUB to diversify into the cable manufacturing business, was valued at RM119.42 million and the purchase consideration was to be satisfied via the issuance of 199.04 million new KUB shares at 60 sen apiece.

At the same time, KUB would buy the remaining stake in CCB for RM2.60 per share to be satisfied either wholly in cash amounting up to RM18.4 million or via the issuance of new KUB shares at 60 sen each.

JAG Capital’s shareholding in KUB was expected to increase to more than 50% from 32.96%, hence obliging it to make a MTO following the sale of CCB to KUB. Based on 60 sen per share, the MTO would have cost JAG Capital about RM167 million.

Last Monday, roughly two months after the deal was announced, KUB announced that it would issue redeemable convertible preference shares (RCPS) instead of new shares to pay for the acquisition of CCB. The RCPS could be converted into new ordinary KUB shares on a one-for-one basis.

A CTOS search shows that apart from Johari son’s Amir Nashrin Johari, the other major shareholders of CCB are Lim Eng Thong, Lim Ka Huay, Li Soo @ Li Nyuk Yong and Leow Mian Yong.

The change in payment mode for CCB — from the issuance of ordinary shares or cash to RCPS — suggests that KUB does not want to fork out cash for the acquisition and wants to avoid a shareholding dilution.

KUB is sitting on a net cash pile of RM365.1 million or 65.6 sen per share.

“The issuance of preference shares will delay the dilution of existing shareholders’ interest. At the same time, RCPS holders will receive cash should KUB redeem the shares,” a market observer tells The Edge.

While the investing fraternity thought the issuance of RCPS would help JAG Capital avoid making a MTO, the announcement also unveiled a conditional VTO for the remaining KUB shares and RCPS not owned at 60 sen each.

The VTO is a surprising move given that asset injection is generally perceived as a back-door listing of JAG Capital’s cable manufacturing business. JAG Capital would take KUB private should it obtain more than 90% shareholding in the latter, according to a filing with Bursa Malaysia. Otherwise, it would keep KUB listed.

It is worth noting that KUB is rushing to complete the related-party transaction by the end of February as this will save JAG Capital from capital gains tax. (See also Cover Story on Page 61.) Its original completion date is the end of June.

In another unexpected twist, JAG Capital bought KUB shares on the open market, raising its stake to 33.28% and hitting the threshold for a MTO.

A day later, KUB announced that JAG Capital’s VTO had become a conditional MTO. The acceptance condition was such that JAG Capital and the parties acting in concert would have to hold, in aggregate, more than 50% of the voting shares in KUB.

The offer would lapse and the shares surrendered to the minority shareholders if JAG Capital did not have 50% shareholding at the closing date of the offer.

Leasing Corp Sdn Bhd is the second largest shareholder of KUB, holding a 17.97% stake. Its decision to accept the general offer would, to some extent, help meet the condition. Leasing Corp is owned by Sisma Vest Sdn Bhd, which is linked to Datin Mariam Prudence Yusof.

JAG Capital first surfaced as KUB’s substantial shareholder in March 2019 after the purchase of a 31.99% stake from Anchorscape Sdn Bhd for RM121.09 million. Anchorscape ceased to be KUB’s substantial shareholder in November 2022.

KUB is primarily a liquefied petroleum gas (LPG) player after its exit from the oil palm plantation business in June 2022. LPG is the main income earner, contributing 96.7% to KUB’s top line in the financial year ended June 30, 2023 (FY2023). Other business segments are information and communications technology and power.

Although KUB reported a 10.8% decline in revenue to RM488.89 million in FY2023 from RM547.96 million in FY2022 due to the absence of revenue contribution from the oil palm plantation business, its net profit jumped 85% to RM33.81 million from RM18.28 million, buoyed by the recognition of a gain on fair value of investment in KUB Sepadu Sdn Bhd of RM13.4 million as well as improved performance by the LPG division.

In 1QFY2024, KUB’s net earnings surged 96.3% to RM7.35 million from RM3.74 million in the same quarter a year ago, largely driven by the encouraging performance of the LPG division and a gain of RM2.8 million from the disposal of assets.

KUB has been disposing of non-core assets over the years. It has some vacant land in Negeri Sembilan and Selangor, according to its 2023 annual report. 

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