This article first appeared in The Edge Malaysia Weekly on February 3, 2025 - February 9, 2025
The privatisation of Malaysia Airports Holdings Bhd (MAHB) is probably one of the longest in the recent history of Bursa Malaysia.
It took the offerors, a consortium of Khazanah Nasional Bhd, the Employees Provident Fund (EPF) and a division within the private equity arm of Global Infrastructure Partner (GIP), almost nine months to get the acceptance required to take the airport operator private.
In the nine months, the sceptics, which included independent directors of the company, kept stressing that the offer of RM11 per share for MAHB was too low and that shareholders should not accept it. But at the end of the day, the consortium, which is Gateway Development Alliance Sdn Bhd (GDA), received acceptance of more than 95% and will compulsorily acquire the rest of the shares it does not own to take MAHB private.
So, do the shareholders really listen to the noises in the marketplace? Obviously not, in this case of MAHB.
And the shareholders of MAHB are not lightweights. They are mainly institutional funds who make decisions based on fundamentals and tend to outperform the market compared with retailers.
Ultimately, it was the “smart” money that concluded that the offer of RM11 was justifiable and accepted the deal.
One only needs to look at the shareholders list of MAHB to comprehend the concentration of shares in the hands of large institutions.
Based on the list of shareholders as at the end of March 2024, which is six weeks before GDA announced the takeover, the three largest shareholders of MAHB were Khazanah, EPF and Kumpulan Wang Amanah Pencen (KWAP).
Khazanah and EPF collectively held close to 41% of MAHB. KWAP held 6.87%, and the rest were all held by institutional names such as Amanah Saham Nasional, AIA Bhd, Great Eastern Life Assurance, Government of Singapore (GIC) fund, and funds related to Prudential Assurance.
Institutional funds are unlike retail investors. They have the clout to fight a deal that is unfair. They are the custodians of “smart money” in the world of high finance.
They are supposed to be better than the retailers, who tend to go with the “noises” in the market, and invest based on speculative news flows. Retailers tend to trade on sentiments, and some have the herd mentality, which most of the time causes them to lose money.
If the institutional shareholders felt that the RM11 per share was not right, they would not have accepted it. And they were not put in a position of being forced to accept the offer.
This is because the privatisation of MAHB was done through a voluntary general offer (VGO). It was not done through a scheme of arrangement (SOA) where the minorities are disadvantaged.
Under a VGO, a lot is left to shareholders to decide. Some VGOs come with conditions such as 70% acceptance, which means the offer only crystallises if the acceptance level is 70%.
In some cases, the offeror can even make an unconditional VGO, which means that there are no conditions.
The VGO is not the same as a mandatory general offer (MGO) where the offeror is obliged to state a condition, which is normally 51%. And if the acceptance level hits the threshold, the offer becomes unconditional and the MGO takes place.
In the case of SOA, the interested parties are not allowed to vote. In MAHB’s case, that would be Khazanah and the EPF.
The scheme and the independent advice have to go through the Securities Commission (SC) before being circulated to shareholders. Subsequently, the board convenes a shareholders’ meeting, where the proposal needs to get at least 75% approval from the disinterested shareholders, and it should not be opposed by more than 10% of shareholders.
Hence, if 75% of the minorities agree to the proposal and not more than 10% oppose it, the scheme goes through. The minorities are paid off, and the company is taken private.
Privatisations done through an SOA tend not to favour minorities.
In the case of MAHB, GDA opted to take over via a VGO with a condition of 90% that was later reduced to 85%.
In contrast to some views, the offeror has the right to reduce the threshold to make a VGO unconditional.
In 2017, pharmaceutical products manufacturer, Hovid Bhd, launched a VGO with a condition of 90%. It later dropped the conditionality to 75% and finally to 67%. The offer became unconditional at 67% and Hovid was eventually delisted.
As for the RM11 offer per share, it’s surprising that one month before GDA announced its privatisation of MAHB, research houses had pegged the value of the airport operator between RM8.75 and RM10.25 per share. This was in April 2024, after MAHB had signed a new operating agreement (OA) with the government and the concession was extended for 35 years until 2069.
Prior to April, most research houses put a fair value to MAHB at less than RM8.
No research house tagged MAHB at RM11, even after it had signed a new OA and the concession was extended by 35 years. This was largely because the market was wary of MAHB’s heavy capital expenditure in expanding airports.
Also, MAHB has a poor track record of undertaking expansion projects within time and cost.
In the circular to shareholders issued for the privatisation exercise, Hong Leong Investment Bank’s (HLIB) valuation of MAHB was between RM12.61 and RM13.71. HLIB, which is the independent adviser, told shareholders that the offer price was not fair, but was reasonable and should be accepted.
The independent directors got a valuation of RM10.95 to RM13.15 from UBS Singapore. They opined that the offer was not fair and not reasonable, and told shareholders to reject it.
But the institutional shareholders went for the deal. Although the offer is not fair, they would rather take the money off the table and put it elsewhere.
“MAHB will relist sometime in the future and the funds will put their money again, subject to valuations,” says a fund manager.
M Shanmugam ([email protected]) is a contributing editor at The Edge
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