最新的ＰＡＮＴＡＩ研究报告

Saturday August 12, 2006


Poser for Pantai

By ANITA GABRIEL AND TEE LIN SAY


IN Malaysia, there has long been a paradox of the Government erecting walls to fend off foreign takeovers of domestic assets, while cheering on foreign investments into the land. But if you call out for a nation that has adopted unfettered globalisation to throw the first stone at those that haven't, chances are they're hard to come by.

There is wide consensus that trade and economic benefits under the liberalisation banner do not trump everything, more so national interest and security. The consensus is, however, divided on which deals pose such threats and which don't.

Examples abound across the globe, but to cite some clear demonstrations: the case of Mittal Steel's bid for Luxembourg-based Arcelor, where no fewer than four national governments opposed the bid (it eventually went through); the furious debate on whether several port terminals in the US should be owned by a company based in Dubai; and anguished protests that stopped the Chinese oil company CNOOC from acquiring US-based Unocal. Whether these deals pit economic interests against national security (some of the assumed threats can seem preposterous) is indeed debatable.

On that note, when Singapore-listed and US-controlled Parkway Holdings Ltd acquired a 31% stake in local healthcare group Pantai Holdings Bhd in September last year, what first came across as a smooth-sailing cross border trade with considerable synergisms has unwittingly exposed the sharp divisions among politicians, businessmen and the citizenry.

“It must have been unnerving for the new shareholder Parkway Holdings to see the transaction turn into a political hot potato,” says a market wag.






Datuk Lim Cheok Peng
OPPOSING FORCES



The strongest opposition, it appears, is over the fact that Pantai holds two lucrative government concessions in healthcare support services. The two subsidiaries that hold the prized 15-year government concessions are Fomema Sdn Bhd and Pantai Medivest Sdn Bhd.

Industry sources say the concessions, in line with the objectives of privatisation, include the principle of an ownership structure that must be minimum 30%-bumiputra owned, and at least 50% Malaysian-held, “until such time the company is listed”. In this light, there appears to be various interpretations and debate on whether the listing deadline applies to the concessionaire or its holding company.

But here's the crunch: If one traces the history of Pantai's shareholding, sources say it appears that the minimum bumiputra shareholding requirement (in the context of the concessions) may have fallen short when Datuk Lim Tong Yong (T.Y. Lim) acquired 32.85% of the shares in Pantai from Mokhzani Mahathir back in April 2001. (Mokhzani quit his business in an attempt to quash rumours and doubts over his business dealings under the leadership of the then-Prime Minister, his father Tun Dr Mahathir Mohamad.)

What this means is that the issue that currently haunts Pantai and its shareholders is one that in essence existed long before Parkway Holdings entered the fray.

“It's a cautionary tale of buyer and seller beware as these parameters were there from the start, “ says an industry observer.





MANY TAKERS, BUT WHO REALLY HAS THE FUNDS?


Datuk Lim Tong Yong


With that, some say that the call for Pantai to divest its subsidiaries that own the concessions has become rather compelling. But even as Pantai is merely at the preliminary stages of scouring for an adviser for a possible divestment, industry sources say there have been no less than three parties who have expressed keen interest to acquire the subsidiaries.

The front-runner, it is believed, is politically-linked Realmild Sdn Bhd. Realmild already has a concession to provide hospital support services in the central region of the country via Radicare Sdn Bhd.

The other interested parties, it is learnt, include “a group of investors” together with former Pantai chairman Datuk Dr Ridzwan Bakar and several individual investors.

“Pantai Holdings has yet to appoint advisers for the deal. As for the buyers, they are likely to appoint boutique investment banks to carry out this deal for them. The concessions, and more specifically Fomema, are lucrative, so it'll be interesting to watch. Not many will have the funds required to buy up the concessions, though,” says an industry source.

Even so, the plan itselfremains rather fluid at this stage. Instead of an outright sale, there is even a possibility that a new partner may be appointed as joint concessionaires with Pantai.

“It may even be that there's an agreement for the concession to be extended and perhaps split the pie 50:50 between Pantai and a new bumiputra partner,” he says.

While the interested parties are likely to bid for both concessions, the concessions may end up in separate hands. The truth, however, is that the bulk of the value is in Fomema, as relatively speaking, Medivest is rather small.




Pantai Medical
PARKWAY'S LIM : NO REASONABLE OFFER YET



When contacted by BizWeek, Parkway managing director Dr Lim Cheok Peng said that at this juncture, “... the Pantai board has yet to receive any offer, which it would consider appropriate regarding the potential divestment of its subsidiaries, namely Fomema and Medivest.”

In other words - while there have been offers so far, they have been none too attractive.

Would Parkway have still bought the stake in Pantai if it were apparent at the time that there would be a high likelihood of Pantai having to divest these concessions?

“Strategically, the acquisition of Pantai was in line with Parkway's regional growth strategy. Parkway's board was of the view that there was great potential in the healthcare industry in Malaysia and the investment opportunity in Pantai given the price and its strategic presence, this was part of Parkway's investment strategy to grow its business in Malaysia,” adds Lim.

Still, if there is a palatable offer on the table, the board would have to take it to shareholders for a vote. But this is by no means a sure thing. “Pantai's shareholders are rather savvy. They've got the likes of big players like Fidelity International, Singapore's GIC and so forth. So, the price on the table may have to be equitable for shareholders to give their nod,” says an analyst.



THE CONCESSIONS' APPEAL




Since Parkway's entry into Pantai as its major largest shareholder, the issue has become a political minefield, not least because of the fact that Fomema is viewed as a goldmine.

Pantai's wholly owned Pantai Fomema & Systems Sdn Bhd controls Fomema Sdn Bhd.

Essentially, Fomema holds the monopoly for the mandatory monitoring and supervision of medical examinations of all foreign workers in the country.

Therein lies its biggest appeal - it is a steady income driver, with the only variable being the number of legal foreign workers examined.

The concession lasts for 15 years and expires in September 2012.

According to Rating Agency Malaysia Bhd (RAM), Fomema has been growing at a compounded annual growth rate (CAGR) of 31.3% over the past three years.

The other subsidiary, Pantai Medivest, holds a 15-year concession (effective October 1996) from the Health Ministry for the provision of hospital support services such as facility engineering, biomedical engineering, cleaning services, laundry and linen and clinical waste management services to the three southern states of Negri Sembilan, Malacca and Johor.

Backed by concession rights, Medivest and the Fomema group of companies are Pantai's main sources of income, accounting for about half of Pantai Holdings' group sales and over 40% of the group's operating profit in its recently released results for the four quarters ended June 2006 (refer to table for segmental breakdown). (Pantai has changed its year end from June 2006 to December 2006). Apart from Medivest and Fomema, Pantai has other subsidiaries involved in healthcare support services, though these are very small.


Market sources say the price tag for Fomema's concession ranges from RM300mil-RM500mil and around RM40mil for Pantai Medivest.

Without doubt, Pantai Holdings' financial performance has improved significantly largely due to the robust growth in patient volumes and excellent volume growth reported by Fomema, as pointed out by RAM in a report dated May 2006.

Interestingly, however, in the report, RAM points to a certain “headline risk” for Pantai with regard to the political heat from nationalist quarters following Parkway's emergence as the group's new controlling shareholder.

While RAM believes that the Government will not revoke Pantai's rights to its two lucrative concessions considering the infrastructure that has been put in place and its 10-year track record, it adds that these patriotic sentiments could well weigh on their renewal prospects.

If this happens, RAM opines that it will remove a core unit of Pantai but on balance the sale would give a boost to Pantai's already healthy balance sheet.



A BLOW FOR PANTAI MINORITIES?



Will the divestment of what has become a “solid chunk” of Pantai's business be a major blow for Parkway and Pantai's minority shareholders?

“It will only be fair for all parties if the price is right,” an observer close to the deal puts it. An obvious thing to say, one might add, but the stakes are high as any price short of fair may result in some backlash. “It's a delicate situation. But there will definitely be parties looking for a fire sale of the concessions on their premise that it no longer conforms to the ownership principles as per concession agreement,” he adds.

As for the impact itself on Pantai, not many seem to think much of it. A lone analyst who covers the stock says while the earnings from the two concessions are significant, the investment community has by and large valued Pantai based on a DCF (discounted cash flow) value of the concessions separately but has remained focused on its hospital earnings instead.

“You have to weigh the pros and cons. For Pantai, would the cash in hand be more favourable for shareholders than a concession that earns stable income for the group?”, asks an analyst.

A difficult question to answer indeed; while cash will open up avenues for Pantai to retire existing debts or reinvest into some other businesses, lucrative concessions that offer steady income are not easy to come by.

If you strip, toss and throw out the debates and innuendos that have accompanied this deal from the start, it appears that there is consensus on one most relevant point. And that is well summarised by a long-time market-watcher :

“From the historical perspective, the concessions were created as part of a privatisation plan to boost bumiputra equity. So, everything related to the concession in future will also have to be viewed in that context.”

That sounds like a sufficient clue for those wondering what's likely to happen next.