This article first appeared in Forum, The Edge Malaysia Weekly on May 27, 2024 - June 2, 2024

There is nothing wrong with Khazanah Nasional Bhd taking Malaysia Airports Holdings Bhd (MAHB) private together with the Employees Provident Fund (EPF) and GIP Aurea Pte Ltd.

But how GIP was chosen and what it brings to the table is something that Khazanah should explain to give the proposal a higher degree of transparency and clarity.

Was GIP the only party prepared to partner with Khazanah or were there others that were considered?

Surely, Khazanah would have undertaken an evaluation process before deciding on a partnership with GIP? How many parties were prepared to take up Khazanah’s interest from privatising MAHB and what was compelling about GIP’s offer?

When Boustead Holdings Bhd, under its previous management headed by Datuk Ahmad Nazim Abdul Rahman, decided to privatise Boustead Plantations Bhd (BPlant), it went through an evaluation process and finally decided to team up with Kuala Lumpur Kepong Bhd (KLK).

Unfortunately, the current government lacked the political will to see the deal through and Boustead is still bogged down in debt.

On the MAHB privatisation proposal, based on statements by Prime Minister Datuk Seri Anwar Ibrahim, the government has endorsed it.

Nevertheless, opposition politicians such as Machang MP Wan Ahmad Fayhsal Wan Ahmad Kamal have sniped away, contending that GIP is linked to BlackRock and that its owners have indirectly funded the war in Gaza. Their criticism does not hold water as the world of finance is borderless.

Capital goes where it gets the best returns. Global funds buy bonds, stocks and other assets all around the world. For instance, the Malaysian bond market is one of the biggest in the region.

How sure are the likes of Wan Ahmad Fayhsal that global funds linked to Jews are not already in Malaysia?

Moreover, GIP’s partner in the proposed MAHB privatisation is Abu Dhabi Investment Authority (ADIA) - a fund based in the Middle East. The GIP Aurea joint venture will own 30% of MAHB if the privatisation is approved. If GIP is acceptable to ADIA, why single out Khazanah for criticism?

The remaining equity in the privatised entity will be held by Khazanah (40%) and the EPF (30%). The government will also retain a golden share in MAHB, which means the company will still be very much under government control.

Nobody denies that there is much value that can be unlocked in MAHB. It owns 39 airports in Malaysia and one in Istanbul that is fast becoming a major destination for international passengers.

Apart from its concession to operate the airports, the value in MAHB lies in its vast tracts of land.

The company has 22,165 acres in Sepang, 1,122 acres in Subang and 827 acres in Penang near the Bayan Lepas Airport. These parcels of land are on lease and to only be used for aviation purposes unless reassigned by the Federal Land Commissioner.

These parcels are valuable although the tenure on the leases is short. The proposed privatisation paves the way for GIP to indirectly own 30% of these assets.

This is why it is crucial for Khazanah to explain the value-add that GIP brings to the table. Is the fund going to put in new money to fund MAHB’s capital expenditure?

If GIP is to drive change and improve the operational performance of the airports, Khazanah should be clear on the targets and the timeline to achieve them.

By right, Khazanah should be driving any change at MAHB - by itself. It has nominees on the board that controls the management. The appointment of chief executives is also well within its control.

But the proposal to privatise MAHB shows that Khazanah has failed to bring about the change it desires, hence the partnership with GIP.

At RM11 per share, the offer is higher than even the most bullish of analyst predictions. Retailers who have exposure to MAHB and are seeking dividends would be more than happy to take up the RM11 offer.

However, MAHB’s shareholders are mainly funds. They know the numbers and some of the existing shareholders could view the RM11 price tag as cheap.

Based on the numbers for the financial year ended Dec 31, 2023, MAHB had borrowings of RM4.6 billion and earnings before interest, taxes, depreciation and amortisation (Ebitda) of RM2.3 billion. Hence, the privatisation is being done at about 10 times enterprise value over Ebitda, which is not too expensive for a concession that ends in 2069 and vast tracts of prime land for aviation-related development.

One of the fastest growing arms of MAHB is the airport in Turkey. The international passenger traffic at the Istanbul Sabiha Gökçen International Airport (SAW) surpassed pre-Covid levels last year. It is a major contributor to MAHB’s cash flow.

In 2023, Ebitda from the Istanbul airport was higher than that from all of the Malaysian operations. And increasingly, Istanbul is becoming the gateway between the East and the West, providing stiff competition to Dubai.

The airport is believed to have its fair share of suitors, which raises the question of whether MAHB will sell it after the proposed privatisation.

When PLUS Malaysia Bhd was privatised, it was because of constant problems with toll rates. The government could not raise toll rates and decided to privatise PLUS instead. Since then, toll rates have not gone up. In fact, they came down 18% in early 2020 under the Pakatan Harapan government.

The government could make such concessions because PLUS was already privatised and owned by government bodies. In MAHB’s case, what is the benefit for the government should the proposal go through?

M Shanmugam is a contributing editor at The Edge 

https://www.theedgemarkets.com/node/713049