by P Gunasegaram
Malaysiakini
6:16PM Apr 12, 2013

Whatever possessed the Employees Provident Fund (EPF) to throw in the towel way before the fight had finished, leaving other minority shareholders aghast at its surrender even before the battle had started in earnest? Shame on you, EPF!

We are referring of course to the national provident fund’s meek capitulation by accepting national oil company Petronas’ revised offer of RM5.50 per MISC Bhd share yesterday, eight days before the offer was due to close.

By accepting the offer it has made it that much easier for Petronas to reach its target of acquiring 90 percent of MISC shares, a condition for Petronas’ takeover offer for MISC, and the level at which the oil company can delist MISC from Bursa Malaysia. Petronas has just under 80 percent of the shares now after EPF’s acceptance, 10 percent short of the offer becoming unconditional.

Considering that EPF holds some 9.5 percent of MISC’s shares, if it had refused to play ball with Petronas and held out, it is extremely unlikely that the offer would have succeeded without Petronas revising substantially upwards its paltry offer.

If EPF held out for a better offer and refused to sell at any price below RM8 per MISC share – the top end of analysts’ valuation – the additional amount it would have for the same block of MISC shares would have been RM1.06 billion.

And if in the process, Petronas did not increase its bid any further and the bid fails, then all EPF needs to do as a long-term investor is to wait it out for the full impact of the restructuring – basically the fire sale of its non-core, non-LNG shipping and other businesses which have been pulling it down. That would result in better value for MISC shares.

That means EPF was too hasty in accepting the offer a week and a day ahead of the deadline and therefore sacrificing any possibility of haggling further with Petronas for a better offer. Not just that, it has put pressure on other shareholders, including national unit trust fund manager Permodalan Nasional Bhd (whose units have the next highest stake at 6.35 percent at last count) to accept the offer.

One would have thought that EPF, a major minority shareholder in virtually all prime blue chips listed on Bursa Malaysia, will play a very proactive role in protecting minority shareholders’ rights under all conditions.

This should especially be so since it is the custodian of over half a trillion ringgit of funds belonging to workers in Malaysia, making it one of the largest such funds in the world and the single largest investor in the local stock market.

As a matter of principle it should have refused to play ball with Petronas and stuck it out for the best possible deal for MISC minority shareholders. Instead it sold out of MISC, one of the bluest of blue chips on the market (if you ignored the deleterious effects of unwise diversification measures undertaken during Petronas’s stewardship) for a song at virtually one of its lowest share price over the last 10 years (see chart). Shame on you, EPF!

Unfair but reasonable

Despite the 20-sen revision upwards of its initial offer of RM5.30, analysts were almost unanimous that the Petronas offer still substantially undervalued MISC, which is now on a recovery path after it sold off its loss-making businesses.

Almost all analysts believed the offer was unfair because even current valuations mostly indicated a price above RM6, with one or two even putting the value at over RM8 a share, which is 50 percent higher than the latest offer.

But strangely, despite the substantial undervaluation of MISC shares at RM5.50 a piece, many analysts considered it “reasonable” in what has become a near standard advice for advisers appointed for minority shareholders: unfair but reasonable.

Never mind that there is a contradiction in terms, especially for MISC which has never hitherto been a trading stock but a favourite of long-term funds because of its “boringly consistent” earnings and high dividends which gave predictable returns to them and therefore is very valuable.

Until of course, MISC, under Petronas’s stewardship, started diversifying out of the core LNG carriage business and entering into other shipping areas. In its search for “excitement”, it got its fingers badly burnt when the cyclical shipping downturn happened.

Its major shareholder Petronas had neither the stomach nor the experience to bear the losses and turn it around but instead is in the process of selling them cheaply – a fire sale. It’s yet another expensive lesson for Petronas about venturing into areas which it knows little about and bears no relation to its core functions..

Much of the restructuring is already done and we have examined the situation in some detail here where we said that EPF should not accept Petronas’ offer.

But for some reason only known to itself, Petronas is keen to restructure MISC behind closed doors and avoid the public scrutiny that would take place otherwise as it would have to disclose measures to investors via Bursa Malaysia.

If the privatisation of MISC by Petronas is successful, then it would mean a RM20 billion plus company will be delisted to the detriment of long-term investors who would have liked to have benefited from Petronas’ turnaround plan for MISC.

Sole beneficiary of turnaround

Instead Petronas, with EPF’s connivance and cooperation, is now likely to succeed in the bid, meaning Petronas becomes the sole beneficiary of MISC’s turnaround, denying longstanding shareholders who have suffered with MISC the same benefit while hiding what might be potentially embarrassing details from the public. Shame on you, EPF!

How could you do these to your fellow minority shareholder investors who include PNB-related funds, Felda, Kumpulan Wang Amanah Pencen, Lembaga Tabung Haji and Penang Development Corp, amongst others.

If all these funds had cooperated, Petronas would have failed in its bid unless it increased its offers substantially. If it did not, then these funds would have the option of holding on to their MISC shares for future appreciation as most of them would have preferred to instead of facing the possibility of illiquidity if the stock was delisted.

As the largest of MISC’s minority shareholders and the largest fund in the country EPF should have taken the lead and defended minority shareholders’ interests to the hilt. But it did not. Shame on you, EPF!

Can we ever have confidence that you will invest the RM500 billion plus of our funds wisely and only in our own best interests? You latest action gives us no such assurance and we doubt that as currently structured you will be able to. Shame on you, EPF!