corporate

Strategic move to transform airports

THE privatisation of Malaysia Airports Holdings Bhd (MAHB) is a focal point in Malaysia's aviation industry, seen as a transformative initiative to reshape the country's airport infrastructure.

Yesterday, Gateway Development Alliance (GDA) and its shareholders announced a reduction in their acceptance condition for the takeover of MAHB to 85 per cent of its total issued shares.

This tactical adjustment aims to facilitate the removal of MAHB from the MSCI and other indices, prompting index funds to accept the offer for shares they control but have not yet tendered.

With 86.5 per cent of shares already secured, GDA is confident that the total acceptance will exceed 90 per cent and that MAHB will be delisted from Bursa Malaysia.

The remaining shareholders are at risk of reduced liquidity once MAHB is removed from the indices. GDA has extended the closing date for the acceptance of offer to Feb 4, and emphasised that the RM11 offer price is firm and final.

This price represents a substantial 44 per cent premium over MAHB's share price a year ago at RM7.64.

A COMMON CORPORATE STRATEGY

Make no mistake, the privatisation of MAHB can only proceed if GDA secures a 90 per cent acceptance level.

Lowering the acceptance threshold to 85 per cent is a strategic manoeuvre by the consortium to attract remaining shareholders, such as index funds, without altering the ultimate goal of achieving 90 per cent for taking MAHB private.

This means the consortium is committed to purchasing the shares they have already secured, currently standing at 86.5 per cent as of Jan 17, as long as the level of acceptance is above 85 per cent even if they fail to reach the 90 per cent mark after the offer closes on Feb 4.

Revising the offer terms in corporate takeovers is commonplace; options typically include lowering the acceptance condition or increasing the offer price.

For instance, the privatisation of Hovid Bhd in 2017 saw the acceptance threshold reduced from 90 per cent to 85 per cent, and eventually to 67 per cent, leading to the offer becoming unconditional.

In MAHB's case, GDA was firm on its RM11 offer price and prompted to strategically lower its acceptance condition.

This decision reflects an alignment with market realities and investor sentiment, targeting index funds that typically react to index listing changes. Index funds' acceptance generally follows a strict rule. They will tender their shares once MAHB is removed from the index they are following. This approach highlights the importance of understanding broader market dynamics in corporate strategy.

MIDF Research head Imran Yassin Md Yusof said the offer term revision was within the Securities Commission's takeover code outlined in the Malaysian Code on Takeovers and Mergers 2016.

"The offer term is within the takeover code, therefore it should not be a surprise. Furthermore, the offer document states that the offeror has the right to lower the acceptance threshold," he told Business Times.

WHY THE TAKEOVER IS NEEDED

The consortium is led by UEM Group Bhd, a wholly owned subsidiary of Khazanah Nasional Bhd, and the Employees Provident Fund Board (EPF).

It also includes Global Infrastructure Partners (GIP) — a leading infrastructure investor experienced in airport management — and Abu Dhabi Investment Authority.

GDA's bid aims to foster long-term sustainable growth for MAHB by addressing key operational challenges and enhancing airport infrastructure.

GIP provides global airport management expertise, while UEM and EPF offer local knowledge and funding, ensuring alignment with Malaysia's national interests.

Collectively, the consortium envisions a strategic approach to overcoming MAHB's long-standing inefficiencies.

A significant area of concern is the aerotrain replacement project at the Kuala Lumpur International Airport (KLIA) Terminal One, which has underscored MAHB's subpar performance in managing capital projects.

The aerotrain has been out of service since March 2023, and it was recently announced that there is no definite date for KLIA's aerotrain to resume operations, underscoring the necessity for infusion of technical expertise and possible reinvestment.

GDA argues that MAHB's prolonged history of underperformance could only be properly addressed if it is not constrained by a public market listing and is able to take a fresh approach. 

Additional operational challenges include an outdated baggage handling system and information technology (IT) network failures. Notably, a 2022 IT outage due to equipment dating back to 1998 disrupted operations.

With the offer set to be unconditional, the consortium could lay the groundwork to begin transforming MAHB while working towards securing the 90 per cent acceptance to take the company private.

Imran said MAHB was expected to allocate substantial capital expenditure (capex) in the coming years for airport expansion and development as it geared up to meet growing passenger traffic demand.

"For example, we estimate the cost for the delayed high-priority investments, which include the replacement of the aerotrain and the baggage handling, at RM60 million," he said.

DELISTING FOR LONG-TERM GROWTH AND STABILITY

Delisting MAHB from Bursa Malaysia is anticipated to expedite capital investments and align decision-making with long-term strategic objectives.

The move would allow MAHB to concentrate on sustainable growth, infrastructure development and operational excellence without the pressure of quarterly earnings or short-term market fluctuations.

The consortium asserts that MAHB's current operational and financial struggles will continue if it remains listed, believing that significant transformation is best achieved as a private entity with the backing of strategic and financial investors equipped with a long-term vision.

As a private entity, MAHB would gain the flexibility to execute strategic initiatives effectively, ensuring smoother project management and enhanced stakeholder outcomes.

A TRANSFORMATIVE OPPORTUNITY

The privatisation of MAHB marks a pivotal moment for Malaysia's aviation sector.

While the process has encountered challenges, including operational inefficiencies and scepticism from some stakeholders, it also presents an opportunity for transformation.

By addressing long-standing issues and injecting fresh capital, GDA aims to position MAHB as a leader in regional and global aviation.

Revising the offer terms, as historical evidence suggests, serves as a practical means to navigate complex corporate transactions, highlighting GDA's commitment to transparency and ensuring an equitable outcome for all parties involved. The extended closing period of Feb 4 also provides existing shareholders with more time to tender their shares.

Far from being merely a commercial transaction, the privatisation bid represents a strategic initiative poised to define the future trajectory of Malaysia's airport infrastructure and contribute to economic growth.

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