24September2020

Agenda Daily

PPB-WILMAR DEAL SET A PRECEDENT

The transfer of a huge Malaysian plantation company to a foreign bourse is a significant event for Malaysia’s financial and capital market. It also opens the doors to more such deals. Does anybody care?

 

By A Kadir Jasin

On dec 14, 2006, singapore-based wilmar international ltd (WIL) made a voluntary general offer for all the shares of Malaysian plantation company PPB Oil Palms Bhd (PPB).

According to media reports, the deal, if accepted by shareholders and approved by such Malaysian authorities as the Finance Ministry and Securities Commission (SC), would be worth around RM15.5 billion.

But more importantly, it would cause PPB, which is among the largest domestic plantation companies, to be de-listed from Bursa Malaysia and its domicile transferred to Singapore.

PPB, as most readers would have known, is among the key assets of the Hong Kong-based Malaysian billionaire Robert Kuok Hock Nien, a.k.a. the Sugar King.

But it was not until that date and, through that announcement, that most Malaysians became aware that WIL is, in fact, led by one of Kuok’s nephews, Kuok Khoon Hong.

According to the announcement, PPB owns about 72,500 hectares of oil palm plantations in Sarawak and Sabah. But it has a larger acreage in Indonesia, estimated at about 290,000 hectares.

The younger Kuok said the deal was aimed at merging the Kuok family’s plantation activities in Malaysia and Indonesia to make them among the largest processors and marketers of palm oil products in the world.

The deal has since been accepted by shareholders of PPB and approved by the various Malaysian authorities, principally the Finance Ministry and SC.

The Star newspaper on April 12 reported that shareholders of PPB Group Bhd had given the nod for the merger between Wilmar International Ltd and PPB’s subsidiary, PPB Oil Palms Bhd (PPBOP), as well as the group’s edible oils, specialty fats, oleochemicals and trading businesses under PGEO Group Sdn Bhd (PGEO) and Kuok Oils & Grains Pte Ltd (KOG).

PPB’s executive chairman Datuk Oh Siew Nam was quoted as telling the Press after a successful extraordinary general meeting that the merger exercise and de-listing of PPB Oil Palms from Bursa Malaysia were slated for completion by the second quarter of this year.

‘We view the merger as a long-term core investment for PPB Group. In exchange for the Wilmar shares, we hope to see good returns in terms of dividends,’ Oh added.

‘We believe the synergy from the Wilmar-PPBOP merger will be greater and its dividend stream will be able to cover our existing core flour, sugar, cinema and waste water-treatment businesses.’

Oh was positive that PPB Group would continue to pay good dividends to its shareholders as ‘Wilmar is poised to perform better in future given its stature as a global plantation company with strong upstream and downstream operations.’

Doesn’t anyone care?

BY any standard, this is an important business deal and will remain so for a long time to come. The crux of the matter is that the domicile and control of a major Malaysian asset has been transferred abroad, in this instance to Singapore, and people seem not to care.

The general lack of interest and absence of any meaningful debate are puzzling, to say the least, especially in light of the country struggling to keep itself in the spotlight of foreign investors.

It is in itself an irony. At the very time that our government – led by no less than the Prime Minister himself – is making a sweetheart deal to attract Singaporeans to invest in the much-touted Iskandar Development Region (IDR) in Johor, RM15.5 billion worth of Malaysian assets ‘left’ the country.

The Kuok family, starting with Robert’s father, Kuok Keng Kang, has always used Malaysia as its base. In a way, the family can be considered the corporate royal family of Malaysia.

According to a report in The Star some years ago, Keng Kang made his fortune back in the early 20th century when he was granted the importation and distribution rights for rice, sugar and wheat by the government of Johor.

So shouldn’t it have raised some questions as to why the family is moving the ownership and control of its highly valuable plantation assets away from Malaysia and, of all places, to Singapore?

But nobody asked. In fact, Bank Negara had even waived its earlier decision that required Malaysian shareholders of PPB to repatriate to Malaysia all dividends, profits and proceeds from the sales of the shares to Wilmar.

Naturally the central bank’s generous gesture was wholeheartedly welcomed by Oh, who described it as a good move, saying that the minority shareholders could now keep their investments there, meaning in Singapore.

Would it not have been better or possible for the Kuok Group to proceed with the merger and create one of the largest processors and marketers of palm oil products in the world without leaving Malaysia?

Will more follow suit?

GRANTED that the merger also involves the larger Indonesian plantation assets, could it not be based in Malaysia?

In not so many words, the sale of PPB to Wilmar suggests that Robert Kuok, despite his long and beneficial relationship with Malaysia, is not emotional about where he sites his investments.

And why should he worry when the Malaysian Government, as represented by the Finance Ministry, Bank Negara and SC, did not see anything particularly wrong with the deal?

But we should. This could be the beginning of a concerted move to transfer the ownership, control and listing of the Kuok Group’s assets from Malaysia to Singapore and elsewhere.

This merger suggests that Singapore – at least to the Kuoks — is a better place to transform, expand and host their regional assets like plantations and food processing than in the places where these assets are located.

Maybe the world has changed. Maybe Malaysians don’t care anymore about who buys and sells their assets. Maybe Umno does not care anymore if our plantations and other landed assets are controlled from across the Causeway.

Maybe history means nothing to the people who are in power today. Maybe they think that Robert Kuok transferring ownership and control of his Malaysian assets to Singapore is not important.

Maybe in their search for the loftier ideals and metaphysical things like lasting contentment and peace of mind, they do not think that such a business deal may undermine investors’ confidence in this country.

Maybe they have forgotten that only decades ago — 1982 to be exact – former Prime Minister Tun Dr Mahathir Mohamad prompted Permodalan Nasional Bhd (PNB) to launch a dawn raid on the London Stock Exchange that bagged us the Guthrie plantation group.

So shocked and distressed were the British that they changed the City of London merger and takeover rules to thwart other similar raids.

A blow to the local bourse

OBVIOUSLY, the PPB-Wilmar deal has done nothing to jeopardise Robert Kuok’s high esteem in the eyes of the Umno-led leadership. His commitment to Malaysia was not the subject of suspicion or concern.

Instead, as the deal was being considered, the Prime Minister proudly named Robert Kuok as one of the advisers to his pet project, the IDR.

It is also ironic that the transfer of ownership, control and domicile of Kuok’s Malaysian plantation assets took place at a time when the government is touting the mega merger of three plantation-based PNB companies – Sime Darby, Golden Hope and Kumpulan Guthrie – as the way to the future.

The PPB-Wilmar deal is bound to have a far-reaching effect on the local corporate and investment scene.

The de-listing of PPB from Bursa Malaysia is a major blow to the local bourse and the country’s continuing efforts to make Kuala Lumpur a global financial and capital market.

It will almost certainly be used as a precedent. Malaysian companies and investors who want to take the ownership, control and management of their Malaysian-based assets out of the country can refer to this deal.

It is as simple as saying ‘if Robert Kuok can do it, why can’t we?’

And why shouldn’t they? Such a deal, as the PPB-Wilmer merger shows, is highly profitable.

The Star reported that the PPB Group was set to harvest a massive profit of about RM6.1 billion from the ‘share exchange’.

When PPB announced the proposed asset disposals on Dec 14, it said the deal would result in a net gain of about RM3.22 billion. Since then, however, Wilmar’s share price has risen by more than S$1.

The Star noted that PPB also has businesses in sugar refining, flour milling, property investment and development, film distribution and waste management.

Incidentally, its sugar and flour businesses are government franchises.

Crime rate taking a turn for the worse

And on a lighter note but no less important, let us consider the following poser – who are we to fear more, the Americans or the Pakistanis?

If we are to believe the American-owned Harper’s magazine, we should be thrice as fearful of the Americans as the Pakistanis or Indonesians.

That’s not because Americans are white and wealthier and Pakistanis are Asians and poorer.

It’s also not because Americans are mostly Christians and Pakistanis Muslims.

It’s because more Americans say it’s okay to attack civilians, presumably in the war on terror.

Twenty four per cent of Americans say that attacks on civilians are sometimes justified. Only eight per cent of Pakistanis and Indonesians say attacks on civilians are sometimes justified to defend Islam.

And the situation is not getting any safer in Malaysia too. In fact, if we are to believe the statistics given by the Prime Minister-cum-Minister of Internal Security, Datuk Seri Abdullah Ahmad Badawi, things have gotten worse.

According to The Star, Abdullah told Parliament that the national crime rate had increased by 41,163 cases last year to 198,622, compared to the previous year.

Stating this in a written reply to Alexander Nanta Linggi (BN - Kapit) the Prime Minister said the most widely committed crimes last year were motorcycle thefts (64,858), other thefts (37,128) and house break-ins at night (19,060).

The statistics, obtained from the police, showed that Selangor had the highest crime rate last year at 54,270 cases, followed by Johor (28,469), Kuala Lumpur (25,236) and Penang (16,229).

Over the last five years, national snatch-theft cases were at an all-time high. The figure was 15,798 in 2003, though it dropped to 9,617 in 2005 and 9,551 last year.

So the Deputy Internal Security Minister, Datuk Mohd Johari Baharum, may, after all, be correct when he complained about rising crime rates in Kuala Lumpur that sparked off heated exchanges with the city police. This prompted the Prime Minister to order them to stop washing dirty linen in public.

Abdullah’s parliamentary statement proved beyond doubt that the linen is indeed dirty, very dirty.

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