- MAS’ major shareholder, Khazanah (69% stake), has proposed to privatise MAS at RM0.27/share. The latter has requested MAS to undertake a selective capital reduction (cum share cancellation) and repayment exercise for MAS’ minority shareholders, which will see Khazanah end up as MAS’ sole shareholder.

- The privatisation is structured via a corporate exercise at MAS level. In this case, a minimum 50% (in number and

75% in value) of the minority shareholders concerned is required to approve the exercise in an EGM for the privatisation to go through. There is a ceiling threshold of 10% of minority shareholders voting against it.

- As MAS is used as the vehicle for its own privatisation, it will be forking out RM1.4bil from its share premium and capital reserves to “buy out” its minority shareholders (comprising 31.6% of shares outstanding).

- We think there is a fair chance for the proposal’s success. Firstly, minority shareholding in MAS is well distributed. The largest of the minority shareholders is PNB with a 1.7% stake, which effectively represents just 0.5% of the minority shareholders concerned in this exercise.

- Secondly, the deal values MAS at a decent FY14F PBV of 1.6x. Though at a slight discount to historical average PBV of 1.68x, bear in mind that MAS’ BV will deteriorate further given deeper losses. Moreover, MAS will likely require fresh capital in the next 12 months given rising cash burn rate and an already stretched net gearing of 305% (FY14F). BV has deteriorated by 25% in the past 3 quarters since the last cash call in 2Q13, while gross cash has deteriorated by 40%. Meanwhile, on EV/EBITDA basis, the offer is more than double that of regional peers.

- Thirdly, the offer is at the highest end of consensus’ fair value range of RM0.10/share-RM0.27/share (mean: RM0.18/share). The offer is at a 15% premium to the 5-day VWAP of 23.5sen/share, which although is less than a recent (JT International) privatisation exercise (at 30% premium), it is differentiated by the companies’ profitability, cash requirement, and the size of the block being taken out in the respective exercises. The last “capital hungry” and loss making GLC to be taken private was Proton in 2012, executed at just 0.5x PBV.

- As the proposed privatisation matches our existing fair value of RM0.27/share, and given the abovementioned reasons, we recommend investors to accept the proposal. The exercise is expected to be completed by end-FY14, while MAS’ restructuring plans is targeted to be unveiled by end of this month.

Source: AmeSecurities