Stock Name: YTLCompany Name: YTL CORPORATION BHD| Research House: AFFIN | Price Call: BUY | Target Price: 1.65 |
Larger Smaller Reset KUALA LUMPUR: YTL Corp Bhd may be able to take YTL Cement Bhd private without a single EGM, leaving little room for minority shareholders of the latter to voice their issues.
YTL Corp is seeking a waiver from the 'requirement to seek shareholder approval' from Bursa Malaysia on grounds that it has obtained authorisation from its shareholders at its AGM on Nov 29 to issue up to 10% of its current issued shares without the need for shareholder approval.
Likewise, YTL Cement may not have an EGM either as its company secretary Ho Say Keng told The Edge Financial Daily in an email reply. 'This is a voluntary offer and no EGM is required of YTL Cement,' he said.
To recap, YTL Cement shareholders have been offered 3.17 YTL Corp shares for each YTL Cement share at an offer price of RM4.50, and 1.56 YTL Corp shares for each RM1 in irredeemable convertible unsecured loan stocks (Iculs) at an offer price of RM2.21.
YTL Corp only has to issue 747.19 million shares or 5.3% of its current issued shares for the 47.8% of YTL Cement's shares that aren't already owned or held by any parties acting in concert, according to estimates by The Edge Financial Daily.
The Minority Shareholder Watchdog Group (MSWG) told The Edge Financial Daily that while the offer looks good for YTL Corp, it has some concerns for YTL Cement's minority shareholders and may not get a chance to raise them if neither company has an EGM.
When YTL Cement shareholders exchange their shares for YTL Corp shares, they will face a drop in dividend yield, an increase in price-to-book (P/B) and increased gearing, said MSWG.
YTL Corp says YTL Cement's privatisation is a voluntary offer and no EGM is required. The company is seeking a waiver from 'requirement to seek shareholder approval' from Bursa Malaysia. A report by Affin Investment Bank Bhd believes the valuation appears fair and explained, 'The proposed offer is not an exit offer but rather a merger of two companies and thus no premium was offered.'
Affin's report reiterated Tan Sri Francis Yeoh's justification: it will provide trading liquidity to minority shareholders.
However, YTL Cement shareholders will experience a drop in dividend yield, said MSWG, based on YTL Cement's price of RM4.50 and historical dividend payouts of 13 sen and YTL Corp shares at RM1.42 and a historical dividend payout of two sen.
The offer will also create many odd-lots due to the odd conversion ratio, said MSWG, and hopes the odd-lots will be eliminated by distributing a dividend.
A separate report by RHB Research Institute Bhd released yesterday noted, 'The lack of acquisition premium above the existing share price suggests that YTL Corp is not going all-out to privatise YTL Cement.'
A more ideal time to privatise YTL Cement would have been after November 2012, when the existing Iculs, which are 97% held by YTL Corp and related parties, can be converted into YTL Cement shares at a better conversion rate, said RHB.
RHB believes that the offer will go unconditional since the current stake held by YTL Corp and related parties of 52.8% already exceeds the 50% threshold rate.
A market observer said the crucial shareholding level to watch will be whether YTL Corp receives a minimum acceptance of 90%, to guarantee a full acquisition and the delisting of YTL Cement.
Any acceptance above that level would result in a mandatory acquisition of YTL Cement, including the shares of dissenting minority shareholders.
It is worth noting that the top 30 shareholders of YTL Cement already own 86.5% of the company, as at Sept 30.
RHB maintained its 'market perform' recommendation for YTL Cement shares, which it gave a fair value of RM4.75.
According to Affin's report, the acquisition will boost YTL Corp's earnings per share for FY13 by 6% from 11.9 sen to 12.6 sen.
Accounting for a 15% holding company discount, Affin raised its target price from RM1.55 to RM1.65 and maintains an 'add' call, and noted, 'The acquisition will be value enhancing given the lower price-to-earnings ratio acquisition price tag.'
On a separate note, MSWG told The Edge Financial Daily that it had voiced concerns about the disparity between YTL Cement's strong earnings growth and flat dividend payout at the company's AGM on Nov 29.
'YTL Cement had explained that the cash will be conserved in view that the global economy will be bad next year,' said a MSWG spokesperson.
YTL Cement's earnings have been growing at an average rate of 21% per annum for the past four years, compared to dividends which have been relatively flat and averaged 16.2 sen in the same period. This has led to a build-up to RM1.2 billion in YTL Cement's cash pile, compared to RM866 million in debt.
YTL Cement yesterday closed 14 sen lower or by 3.04% to RM4.46 from RM4.60, while YTL Corp remained unchanged at RM1.54.
This article appeared in The Edge Financial Daily, December 21, 2011.
