Is the Perak Lumut Port a trophy asset for 1MDB listing?

By Howard Lee, Pasir Pinji assemblyman


Pasir Pinji assemblyman Howard Lee


What do the Perak Corporation Berhad (PCB), port operator Integrax Berhad, Lumut Maritime Terminal (LMT), Lekir Bulk Terminal (LBT), and Tenaga Nasional Berhad (TNB) have in common?

According to reports and industry sources, the answer could be the troubled 1Malaysia Development Berhad (1MDB).

That answer may have been innocuous at one point, but in the current quagmire which the debt-ridden investment fund finds itself, the relationship between all these companies appear far more forbidding.

And, if an impending energy deal between these companies is not scrutinised carefully, it could lead to losses not only to the state government, but to the rakyat.

Business weekly Focus Malaysia reported recently that industry sources say TNB’s bid for the control of Integrax, in which PCB has 15% stake, may not be as simple as it seems.

Before we explain why the matter is far more complex than it appears, there is some background information that must be established.

First, is that PCB has 15% stake in Integrax, which translates to two seats in the latter’s board of directors. Integrax, in turn, has the controlling stake in two strategic assets vital to Perak’s Industrial and economic interests: the Lumut Maritime Terminal (LMT) and the Lekir Bulk Terminal (LBT).

Second, as early as October 2013, TNB has expressed its intention to build two1,000MW coal-fired power plants in Manjung, Perak to meet the increasing demand for electricity, which grows at 5% annually.

Coal power plants contribute some 40% of TNB’s power generation ratio.

Earlier this year, TNB had failed in its bid to buy over 22.82% of stakes  in Integrax owned by major shareholder Amin Halim Rasip.

Amin is the co-founder and deputy chairman of Lumut Port operator and a report in The Star dated Jan 17 quoted him as saying that he will not sell his stake in the company, deeming the offer price of RM2.75 by TNB as “not fair and not reasonable and not reflecting the value of Integrax.”

He also recommended other shareholders reject the offer by TNB.

“There is more value to be gained and I recommend that shareholders reject the TNB offer, and depending on shareholder needs in the near term to hold out for a much higher price and derive significant value and more shareholder benefits for the long term,” he was reported as saying.

Early last month, PCB had resolved to reject the offer by the latter, holding out for a higher buyout price instead of at least RM3.25 a share.

However, Integrax’s independently appointed advisor, M&A Securities Bhd, had valued Integrax shares at RM3.60 to RM3.62 as per a valuation conducted by financial advisor FHMH Corporate Advisory Sdn Bhd.

On Feb 26, however, TNB agreed to offer PCB to buy its shares at RM3.25 a share. PCB CEO Aminuddin Md Desa then followed by recommending that the shareholders of PCB accept the offer of RM3.25 per share by TNB — a grave impropriety, since Aminuddin is also a director in Integrax.

If TNB succeeds in its bid to buy PCB’s stakes in Integrax, then it would take control of the Lumut port, which is integral to TNB’s plans to build the Manjung power plants since the Lekir Bulk Terminal at the Lumut Port facilitates the import of coal for TNB’s planned power plant.

Where it all gets a bit worrisome is that industry sources are widely speculating that one of the reasons for TNB’s bids for Integrax is for it (Integrax) to be used as a vehicle to aid 1MDB’s impending listing of 1MDB’s power assets.

Lumut port (pic from Lumut Port.my)

Lumut port (pic from Lumut Port.my)

The sources, as quoted by Focus Malaysia, add that TNB is likely to proceed with another power plant, called M6, in Manjung, Perak and Integrax may be used as a vehicle for that plant. It is also likely TNB will opt for a stake in 1MDB’s listed vehicle, which is expected to have a market capitalisation of RM11 billion.

The listed vehicle may, in turn, take a stake in Integrax, says a source, adding that there could be some form of business collaboration between the companies. This is more than enough evidence to conclude that the Lumut Port is going to be used as trophy assets to boost capitalisation.

By now, numerous exposes and reports have indicated that not all is well within 1MDB, and there is a need to scrutinise the speculated deals and ask some tough questions:

>> Why is PCB selling its stakes in Integrax? According to its financial reports, the company has over RM700 million in assets as of December 2012, with a profit of RM47 million for the financial year ending 2013. With a dividend payout of some RM13 million, 15% of stakes could translate to a few million ringgit in income for the state.

>> Why did Aminuddin publicly recommend that shareholders agree to the offer of RM3.25 a share when independent valuers say it can fetch up to RM3.62 a share, and,

>> Why is PCB selling its stake in Integrax, which is essentially the ‘goose that lays the golden egg’? And to what end?

As a state law maker elected to ensure the best for the state, I will not indulge in the debate of what price should PCB sell the shares at; my view is that the PCB ergo the State should not entertain the notion of selling at all.

In response to those who calls the above reporting as mere speculation; The current cesspool of rot that is 1MDB ended up in its current state was because such speculations were not nipped at the bud before it hit the point of no return. My conscience will not allow my silence, when a strategic asset within my state is possibly being used as canon fodder in rescuing the sinking ship that is 1MDB.

The State Government should drop its deafening silence on this issue, and halt this centralisation and privatisation of Perak’s Golden Goose. If indeed it is brave enough to stand up to TNB and the federal puppet masters in defending our State’s assets and best interest,

Start with a clear and concise order to withdraw from all talks to sell PCB’s 15% share, and fulfil the yet to be realised 2012 promise of setting up a Perak Port Authority and start collecting revenue rightful to the People of Perak.

– The Rocket

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