(Petaling Jaya, Wednesday): EPF should clarify whether it is being asked to be the "white knight" for United Engineers Malaysia Bhd. (UEM) and Renong a second time with a RM1.5 billion purchase of 20 per cent stake in PLUS, after losing some RM400-500 million for 65.91 million UEM shares in Sept/Oct. last year
EPF should explain whether its purchase of the 65.91 million UEM shares in Sept/Oct. last year was part of a concerted plan to use UEM to bail out and prop up Renong - and now that the UEM is itself in trouble, EPF is again being asked to use the provident fund savings of nearly nine million workers to come to its rescue.
Reuters has reported that UEM may be poised to sell a stake in its road toll operations to finance its RM2.34 billion equity purchase of 32.6 per cent stake in Renong Bhd
The Reuters report said:
"UEM's move to buy a 32.6 percent holding in affiliate firm Renong Bhd stirred a storm of controversy over concerns about its secrecy and the view that major shareholders may have benefited at the expense of minority investors.
"But after weeks of scrutiny, the Malaysian authorities have not challenged the deal, which was announced last November.
"Analysts said the purchase was an unnecessary drain on UEM's cash flow and a blight on the financial prospects of a once favoured foreign portfolio holding.
"Renong has defended the deal, saying UEM got a good investment at an attractive price.
"Now that the transaction seems set to go ahead, analysts said UEM would seek to raise funds for the purchase of the Renong stock, which was initially financed with borrowings.
"They say talk has been circulating that UEM - builder of the km North-South highway that snakes down the length of Peninsular Malaysia - may sell 20 percent of its PLUS toll operator to the Employees Provident Fund (EPF) for billion ringgit ($326 million).
''’The rumour is it (UEM) is offering around a 20 percent stake for around 1.5 billion ringgit,’' said an infrastructure analyst at a local brokerage firm.
"Asked about the buyer, he added, ‘...supposedly the EPF’.
"Officials at UEM and national pension fund EPF could not immediately be reached for comment.
"A market analyst at a foreign brokerage said EPF was a logical buyer. ‘Who else has got the cash? They've got the money,’ he said.
"But he was not convinced it was a good deal for the pension fund, which has investments in many major Malaysian companies. ‘I think that for 1.5 billion ringgit, they should get 25 percent (of PLUS), but they will probably only get 15 to 20 percent for that amount of money,’ he said.
"PLUS, the commonly used acronym for Projek Lebuhraya Utara Selatan, is the jewel in UEM's crown and its largest profit contributor. In 1996, PLUS accounted for around 67 percent of the company's pre-tax profit of 472.6 million ringgit.
"UEM is also involved in construction.
"The sale of the PLUS stake would help meet the bill for the Renong stake buy. Selling a 20 percent piece would enable UEM ‘to maintain control over the operations as well as management,’ said the local brokerage analyst.
"He said the 1.5 billion ringgit price tag for 20 percent of PLUS was reasonable ‘assuming there is no toll review’. He said the cash from the sale would reduce UEM's gearing to 2.5 to three times debt-to-equity from four to five times.
"UEM's holdings in Renong could be limited to the shares it has already bought. It asked for, and was granted, a waiver from having to make a general offer for the balance of Renong shares.
"UEM also sought to allay investor concerns about the Renong deal, saying in a statement on Saturday that Renong executive chairman Halim Saad has granted a put option to UEM under which UEM could choose to sell him the Renong shares in two years.
"But analysts said it was unclear if Halim could undertake such an expensive deal in the future. 'It still stinks,' said the analyst at the foreign firm."
The nine million EPF contributors are shocked that even before EPF could give a full and satisfactory explanation about its purchase of 65.91 million UEM shares in Sept./Oct. last year which has involved a loss of some RM400-500 million, EPF is now being asked to bail out UEM in the Renong deal by acquiring 20 per cent stake in PLUS for RM1.5 billion.
The interests of the workers must be paramount in any investment decision taken by the EPF, and the EPF investment panel owes the nine million EPF contributors a duty and responsibility to give full disclosure of its investment proposals as well as to give EPF contributors the opportunity and respect their right to be consulted in such major investment decisions.
I would call on the EPF to establish a EPF Contributors' Watchdog Panel to protect the interests of the contributors in all investment decisions taken by the EPF and the Investment Panel should fully consult with this EPF Contributors' Watchdog Panel before committing major EPF funds for any company or project.