(Dedicated to HNG :P)
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YTL privatisation - is it a good deal for minority? A lot of commentators before me have pointed out it's a raw deal to minority who have invested in a business hoping for a payday when the company is more profitable.
Intrinsic value
I am of the opinion that shareholder gets better intrinsic value by holding a pure-play cement counter rather than holding a conglomerate counter like YTL. If I want to hold YTL, I would have went out to buy their shares - no thanks for forcing me to be a shareholder. In YTLP's case, I say no thanks to any privatisation attempt through share swap with no acquisition premium. YTLP's underlying holding is far superior than YTL's mix pot of assets.Earning growth
As noted in my last post, YTLC's earning is up 41% is its latest announced quarter. No doubt by privatising it, YTL have managed to plug the cashflow leakage to minority shareholder, thereby maximising the cashflow for its own benefit. Assuming the same PE multiples, the increase bottomline will directly mean a better underlying share price. Those YTLC shareholder that bought in at over RM5 would know.Currently Malaysia is going through a huge construction upswing, with cement sector doing particularly well. What would the effect be if YTLC stay listed? We can look at Lafarge for a comparison.
Dividend payout?
Althought YTLP and YTL is paying the same absolute dividend at the moment - YTLP's cashflow generation rate allows them to pay a far higher dividend then what YTL is capable of. This is by virtue of their current cash horde of RM10B - along with their cash generation ability. The lowering of dividend is a conscious management decision and not forced upon them by any external difficulty.Much of YTL's cash horde of RM 12B (I believe) lies in YTLP. The estimated figure is $10B out of the RM12B sits at the subsidiary level. They could get to it by doing an intercompany loan (look at L&G), payout a dividend, or privatise YTLP then payout a dividend.
Looking at their history with YTLC - in hoarding cash then privatising it without EGM - I hope they will keep YTLP listed and increase the payout. But I can only speculate.
Likelihood of privatisation & EGM
Unlike the YTLC privatisation where a waiver of EGM requirement allows them to carry out the share swap it is extremely unlikely for a similar situation to happen in YTLP's case.
YTL despite its frequent rhetoric on its desire to privatise YTLP has recently made a massive grant of WB to YTL's shareholder - my initial suspicion was a privatisation attempt. But Felicity of Intellecpoint has pointed out it's extremely unlikely for them to give out WB at a discount then buy it back at a premium - just doesn't make sense.
In the event that they do attempt to privatise, waiver is unlikely to be given as shares required to be issued will exceed the 10% threshold. But this only applies at YTL level - as YTL shareholder, of course I will support the deal. YTLP's EGM situation is more murky. I am not too sure what's the effect of the mandatory takeover code on such privatisation attempt - if there's anyone that's an expert do chirp in.
I would speculate that an attempt to privatise will be conducted through another private vehicle not part of YTL's group of company. Simply because despite the value of YTLP - it doesn't make sense for YTL to give out discounted warrant and then purchase it back at a premium.
Makes more sense to give out discounted warrant and allow a private party to purchase it back in the market at the depressed pricing.
Excerpt of news article on privatisation of YTLC
Market watcher
ReplyDeleteLets re post the Q&A here and comment whether there is any logic in each of the comment
1) No premium offered
Actually at that time there is some premium as the issue price is at 1.42 (RM 4.50), but the market price is 1.48 (RM4.69), and YTL cement at time also trade at discount 4.30, so that total different is about 39sen different. Off course if YTL offer much better ratio for YTLP is even better.
2) swap from pure play to conglomerate (with usual discount)
No doubt YTL is conglomerate and is holding company, discount in valuation. But in reality, YTL corp trade at higher PE than its YTL cement and YTLP. In addition, if YTL privatize YTLP, it no longer treat as holding company, as it will already have direct exposure to all its main earning division, diversifying it earning base and have much liquidity in the market
3) Growth story at subsi level..
Again, once YTLP is wholly own by YTL corp, earning growth in subsidiary will have direct impact.
4) Felicity pointed out - they are not stupid to first give out warrant at discount then buy it back
I think it is Yeoh family strategy to increase it direct stake in YTLP through these distribution in YTLP-WB. Yeoh family control 49.11% in YTL corp, which in turn control 44.89% in YTLP. so that its effective stake in YTLP is only about 22%, which added it current direct stake in YTLP of 10.23% become total 32.23%. Through YTL-WB offer for sale at 20sen, it liquidize YTLP WB stake and Yeoh family entitle the most of the WB. This enhance its direct controlling in YTLP with much cheaper cost through WB
5) they would have to hold EGM, unlike YTLC case where no EGM is hed
If the share swap at ratio 1:1 , it is certain both YTL and YTLP must hold EGM. Both company share some major shareholder: EPF have stake YTL 8% stake and 8.9% in YTLP. Deutsche bank Ag Singapore have 10.12% in YTL, although no stake in YTLP but it have 10.1% in YTLP WB, which can be convertible if needed. If share swap done at attractive ratio, getting these shareholder approval should have least problem. After all, YTL and YTLP dividend yield have reach almost equilibrium at about 2.2%
6) I think you could've made more if YTLC stayed. It's last quarter earning is up 41%.
No doubt YTL's price went up too - but it's relative to what it could be
Assume one still hold share resulting from share swap from YTL cement to YTL corp, it will hold 3.17 share x current YTL corp share at 1.79 = 5.67 (26% gain)
it also enable to enjoy cash dividend of 2 + 1sen (3sen), share dividend 1:15 (38sen),entitle to WB at 20sen based on 1:15 ratio (5sen) = totaling 46sen (10.2% gain)
Remark: YTL corp at 1.79; YTLP-WB at 44sen
All in all, YTL cement must trade above 6.13 in order to outpace it.
7) my theory is that YTL's share appreciate mainly due to buyback.. not any change in wider market sentiment.
YTL corp indeed aggressively share buyback and have accumulate so far 3.47%. I think it is management strategy to buyback share through open market and later distribute back to shareholder via share dividend, which is indirect way to increase major shareholder stake in the company and also absorb excess share in open market due to exchanging of 5 years Guaranteed Exchangeable Bonds 2010/2015 and selling from EPF
Market Watcher
ReplyDeleteWhat is meaning of being major shareholder; its founder of the company, controlling not only majority stake but also being the management of the company
VS.
Retail investor, control minority stake in company; have option to buy and sell at own discretion at anytime, any price in open market.
Market Watcher
ReplyDeleteHowever i don't think privatization is priority for YTL corp at the moment. It is just one of the possible option.
In the meantime, YTL corp can do thing to increase its own value like acquire stansted Airport and divest YTL Power local power plant to 1MDB and later extract special cash dividend from YTL Power.
Market watcher
ReplyDeleteSome may argue that YTLP is cronies party and have high political risk. But, we must respect and accept that current YTLP derive 90% profit from oversea, namely Power Seraya (Singapore); Wessex Water (England); Jawa Power (Indonesia); ElectraNet (Australia). The profit from local power plant and loss from Yes Wimax just offset each other.
RAM Ratings reaffirms YTL Power's notes AA1 and AA1/p1
ReplyDeleteKUALA LUMPUR: RAM Ratings Services has reaffirmed YTL Power International Bhd (YTLPI) commercial papers with a long term stable outlook.
RAM Rating Services had on Monday, reaffirmed the AA1 long-term rating of medium-term notes programme of up to RM5 billion (2011/2036), as well as the AA1/P1 ratings of its RM2 billion commercial papers or medium-term notes programme (2007/2014).
It said in a statement that the ratings reflect YTLPI's robust business profile that is underpinned by its base of regulated assets, particularly its investments in power and water-sewerage services via wholly owned YTL Power Generation Sdn Bhd (“YTLPG”) in Malaysia and YTL PowerSeraya Pte Limited (“YTL PowerSeraya”) in Singapore.
However, it said the group capital structure remained constrained by its hefty debt burden of RM22.99 billion as at end-June 2012, with a corresponding adjusted gearing ratio of 2.38 times.
“Taking into account its RM9.63 billion of cash reserves, of which RM8.09 billion is free from encumbrances and will be readily available for the company if required, its adjusted net gearing ratio works out to 1.40 times,” it said.
It said nonetheless, more than 80% of the Group's debts reside with subsidiaries that are viewed to be self-sufficient; we note that these debts are concession-related, ring-fenced and non-recourse to YTLPI
I've bought CYpark, the mini IPP for green energy, namely solar, biogas and biomass.
ReplyDeleteCYpark is awaiting 20MW Biomass in its landfill at ladang Tanah Merah to be official sign under BOT for 25year concession.
CYpark currently already operate in Tanah Merah landfill site to treat and dispose municipal solid waste. As the landfill is capable to generate biomass up to 20MW, CYPark is secure concession and sign feed in traffic concession with TNB, it will enable CYpark not only derive eanring from tipping charge on solid waste but also earning from generating power from biomass.
Currently, CYpark already derive Renewal energy from its 8MW solar and 2MW biogas in Pajang (NS) integrated renewal energy park. So far, it have newly install another 5MW solar, making total RE 15MW (8+5 MW solar+ 2 MW biogass)
CYpark also replicate these integrate renewal energy park in other 3 other landfill, namely Bukit Palang (NS), Rimba Terjun (Johor), Kuala Perlis (Perlis), totaling another 20MW solar + 5 MW biogas.
All in all, CYPark RE division will increse multifold these year onward from 8MW solar to total 33MW solar and 7MW biogas. If CYpark can secure tanah Merah Biomass RE, it will add another 20MW biomass in its RE portfolio