BLEAK 2017: SLOWDOWN IN M&A ACTIVITIES

APART from the depreciating ringgit, the capital markets were rocked by a series of unexpected political events that slowed down the deal flows.

The year started with crude oil continuing its drop and China adjusting the yuan downwards. The markets reacted negatively to both events, but it did not stop companies from undertaking corporate exercises.

However, Britain’s decision to leave the European Union and the election of Donald Trump as the next president of the United States were unexpected political developments that rattled the capital markets and are expected to have some bearing in the first few months of next year.

It did not help improve sentiments that were already affected by weak economic performance.

This year, the top-10 merger and acquisition deals amounted to US$7.91bil (RM35.43bil) based on the exchange rate of US$1 to RM4.48, which is lower than last year’s amount of US$8.82bil (RM39.51bil).

And out of the US$7.91bil deals completed this year, one single deal – 1Malaysia Development Bhd‘s (1MDB) sale of its electricity-generation unit, Edra Global Energy Bhd, to China General Nuclear Power Corp (CGN) – made up almost 50% of it.

The transaction between CGN and 1MDB involving Edra started in November last year and was completed on March 23 this year at US$3.86bil. The price came about after a bidding process.

Power deal: Edra Global Energy’s Powertek plant in Teluk Gong, Malacca. Out of the US7.91bil deals completed this year, one single deal – 1Malaysia Development Bhd‘s sale of its electricity-generation unit, Edra Global Energy, to China General Nuclear Power Corp – made up almost 50 of it.

Power deal: Edra Global Energy’s Powertek plant in Teluk Gong, Malacca. Out of the US$7.91bil deals completed this year, one single deal – 1Malaysia Development Bhd‘s sale of its electricity-generation unit, Edra Global Energy, to China General Nuclear Power Corp – made up almost 50% of it.

The principal bank leading the deal was Maybank Investment Bank Bhd, while the other financial advisers involved were HSBC and Rothschild.

The second-biggest deal with Malaysian interest was private equity firm CVC Capital Partners acquiring Asia’s largest funeral-services provider, Nirvana Asia Ltd.

Controlled substantially by Tan Sri Kong Hon Kong, Nirvana Asia was listed only two years earlier in December 2014.

However, its share price failed to perform after its listing at HK$3 per share. CVC Capital took the company private at HK$2.45 in a deal that was completed in a space of three months beginning from July this year.

CGN acquiring Edra Global Energy and CVC taking over Nirwana Asia were the only two deals involving Malaysian companies that were transacted at more than US$1bil.

The rest of the deals for the year were transacted at values that were much lower.

Heading the list was the privatisation of Kulim (M) Bhd by its ultimate parent company, Johor Corp, in a deal that was worth US$485.3mil.

The privatisation of cash-rich Kulim through a selective capital-repayment exercise took almost seven months to complete amidst some rumblings among minorities seeking a higher price than the payout of RM4.10 per share.

Another deal that was completed quickly was MISC Bhd buying back its 50% stake in Gumusut-Kakap Semi-Floating Production System (L) Ltd, an asset used for the deepwater drilling of oil.

It bought the stake from a unit under Petronas Carigali. Both MISC and Petronas Carigali have a common shareholder in Petroliam Nasional Bhd, which facilitated the speed at which it was completed.

MISC had disposed of the 50% stake in 2012 when the shipping company had to strengthen its financial position.

The Gumusut-Kakap facility is deployed in an oil field off Sabah and has a long-term lease running up to 25 years.

Other notable deals for the year are Australia-based REA Group buying iProperty Group Ltd and MMC Corp Bhd taking over NCB Holdings Bhd.

REA Group already had 22.7% in iProperty before offering to mop up the rest of the shares in a transaction valued at US$416.3mil. REA Group, which is owned by Rupert Murdoch’s News Corp, first bought a stake in the real estate portal in November last year.

MMC Corp taking over NCB was a deal that was long expected. MMC Corp, the operator of two ports in Johor and the Penang Port, had been building up its interest in NCB for a few years.

In October last year, MMC Corp offered to buy out Permodalan Nasional Bhd’s 53.42% stake in NCB for RM4.40 per share, valuing the entire transaction at US$419.7mil. Prior to the offer, MMC Corp had already built up its stake in NCB to 30.13%.

– ANN

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