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Top 12 Malaysian corporate stories of 2021

1. EcoWorld-UEM Sunrise merger plans terminated

The proposed merger between property developers UEM Sunrise Bhd and Eco World Development Bhd (EcoWorld) dissipated as quickly as it had first surfaced.
A little over three months after the proposed merger was brought to light via an announcement to the stock exchange in October 2020, plans were swiftly swept under the rug in the wake of the then new year.

UEM Sunrise had proposed the merger, suggesting it be undertaken via a swap of shares and warrants between the two companies, citing a “pressing need for industry players to consolidate resources and capabilities” amid the Covid-19-related headwinds they faced.

Subsequently on Dec 30, 2020, EcoWorld said it had decided to proceed with discussions on the proposed merger with its rival, but cautioned that it was subject to the company’s assessment on viability and feasibility issues.

A mere two weeks later, any merger hopes were quashed following EcoWorld’s decision to not pursue the proposition.

This move came on the heels of its careful evaluation of the merger alongside the company’s business plans, as well as taking into account the then challenging environment and the re-implementation of Malaysia’s Covid-19-driven Movement Control Order.

2. AmBank settles 1MDB-related claims for RM2.83 billion

AMMB Holdings Bhd’s unit AmBank Bhd was slapped with a RM2.83 billion settlement by the Malaysian government on Feb 26 for its involvement in the 1Malaysia Development Bhd (1MDB) corruption scandal.

It is believed that the bank had to pay the settlement owing to its role in handling the RM5 billion bond issued by 1MDB back in May 2009. This was on top of the RM53.7 million penalty imposed by Bank Negara Malaysia.

The RM2.83 billion settlement, which was nearly 30% of AMMB’s market capitalisation at the time, dealt a big blow to the banking group and it also fanned speculation of a possible merger with its bigger peers. AMMB’s share price plunged 11.4% on March 3 — the first trading day after it suspended the trading of its securities for two days.

For the financial year ended March 31, 2021 (FY2021), the banking group posted a record net loss of RM3.82 billion or 127.22 sen loss per share, compared with net profit of RM1.34 billion or 44.64 sen earnings per share.

It undertook a private placement to raise RM810 million to replenish its core capital in April.

To date, the banking group has paid RM1.8 billion out of the RM2.83 billion. The second and third payments of RM515 million each are due this month and in July 2022 respectively.

As of July, the Ministry of Finance (MoF) said Malaysia’s Assets Recovery Trust Account had received a total of RM18.176 billion of funds seized, returned or for settlements in connection with 1MDB.

The government also agreed to settlements of US$80 million (RM334 million) each with 1MDB’s former auditors Deloitte PLT and KPMG PLT, in relation to the financial scandal.

3. Supply chain problems give businesses a major headache

Car manufacturers have been grappling with global semiconductor shortages since early this year owing to the Covid-19 pandemic.

In October, European car manufacturer Renault said it would cut output by 500,000 vehicles this year, more than double its previous forecast due the shortages.

Closer to home, Perodua highlighted in November that it is unlikely to meet its sales targets for 2021 due to the shortages and expected the chip supply issue to persist until next year.

The chip shortage boosted by strong global demand has lifted share prices of semiconductor related companies.

Malaysian Pacific Industries Bhd outshone its peers, gaining 92.6% year-to-date as at Dec 29, and Frontken Corp Bhd soared 71.5%, while Inari Amertron Bhd jumped 44.3% and Vitrox Corp Bhd climbed 35.6%.

The impact of chip shortages are not limited to vehicles. In October, Apple highlighted it is likely to slash Apple IPhone 13 production amid the supply chain disruptions.

On top of that, the supply chain problems due to the pandemic have caused commodity prices to escalate to multi-year and decade highs.

Besides manufacturers, Real Estate & Housing Developers' Association said builders cited material and labour problems as the top cost component that affected their cash flow in the first half of 2021.

4. Felda fails to take FGV private

The Federal Land Development Authority (Felda) launched a takeover bid in late December 2020 to take FGV Holdings Bhd private at RM1.30 per share.  

The decision to take the plantation group private came roughly two months after Felda chairman Datuk Idris Jusoh revealed that the Cabinet gave the nod to Felda to terminate a land lease agreement (LLA) with FGV.

However, Felda did not receive enough valid acceptance it needed to trigger a compulsory share acquisition and take the listed company private.

Interestingly, following its failed bid to take over FGV, Felda had indicated that it will not terminate the LLA or take over the former’s mills.

Felda currently owns a 79.77% direct and indirect stake in FGV. It has been mopping up more shares over the past months after the failed takeover bid.

Like its plantation peers, FGV has benefitted from the sharp rise in crude palm oil prices that breached RM4,000 level. The group posted net profit of RM702.78 million for the nine-month period ended Sept 30 compared with RM15.09 million a year ago. Its revenue grew to RM13.39 billion from RM10.06 billion previously.

As a result, FGV’s share price has climbed to RM1.49 on Dec 29, which is 14.6% higher than Felda’s offer price.

5. Second attempt at a Celcom-Digi merger

The year saw another merger attempt between Axiata Bhd and Telenor Asia. But this time around, it is on a smaller scale involving only Malaysian operations.

In short, DiGi.Com Bhd’s subsidiary Digi Telecommunications Sdn Bhd is merging with Celcom Axiata Bhd’s mobile telecommunication network operations, the second try after previous plans were terminated in September 2019.

Telenor owns a 49% stake in DiGi.Com while Khazanah Nasional Bhd holds a 36.74% in Axiata.

The merger plan was announced in April — Axiata said it was in advanced discussions with Telenor Asia, with each to have equal ownership of about 33.1% in the merged entity, dubbed Celcom Digi Bhd.

Axiata, along with Malaysian institutional funds, would own over 51% of the merged company.

The merged entity was touted to be a “leading telecommunications service provider in Malaysia”, Axiata said, with a pro forma revenue of about RM12.4 billion, pre-synergy earnings before interest, taxes, depreciation, and amortisation of RM5.7 billion and an estimated 19 million customers.

The fate of the planned merger now lies in the regulator’s hands, as both parties have completed their side of the proposal.

The Malaysian Communications and Multimedia Commission formally received the merger application in November, although no timeline has been given yet on when the authorities would make a decision.

The completion of the exercise, amongst others, will also be subject to the approval of the Securities Commission Malaysia (SC) and the shareholders of Axiata and DiGi.Com.

6. Bandar Malaysia deal is terminated again

This Bandar Malaysia mega real estate development project had always sprung surprises over the years, and 2021 was no exception.

In July, MoF and IWH CREC Sdn Bhd mutually agreed to terminate their deal, in which the latter would buy a 60% stake in the project for RM7.4 billion.

IWH-CREC, a 50:50 joint venture between Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corp (M) Sdn Bhd, would get a RM1.54 billion refund due to the termination.

The Bandar Malaysia project was one of the real estate investments of the controversial 1MDB, initiated during Datuk Seri Najib Razak’s tenure as prime minister and finance minister.

This was the second deal that IWH CREC struck with Malaysian government to purchase a stake in the massive development project located at the former airbase in Sungai Besi.

To recap, on Dec 31, 2015, IWH CREC sealed its first deal with 1MDB to buy the 60% stake in the Bandar Malaysia project for RM7.41 billion. Back then, the joint venture concluded the agreement with 1MDB’s former president and group executive director Arul Kanda Kandasamy.

In an abrupt turn of events, the joint venture was informed that the share sale agreement (SSA) had lapsed due to failure to meet conditions precedent in May 2017 — 16 months after the agreement was signed.

A year later, Pakatan Harapan’s win in the 14th General Election opened a window of opportunity for IWH CREC to renegotiate the stake sale.

Malaysia signed a framework agreement to revive the deal during then prime minister Tun Dr Mahathir Mohammad’s second visit to China in April 2019.

IWH CREC signed the restated and amended SSA for the equity sale in December that year — roughly three months before the country went through another change of government in less than two years.

Despite all the negotiations and efforts, the Covid-19 pandemic that has taken a heavy toll on the global economy seems to be another unexpected factor that has resulted in the aborting of the development, at least for now.  

7. Forced labour allegations abound

Several Malaysian companies were plagued by allegations of foreign worker abuse and forced labour, with the US Customs and Border Protection (CBP) seen to be breathing down the necks of a number of local manufacturers for their purported transgressions.

Glove makers — Supermax Glove Manufacturing, Top Glove Corp Bhd — and palm oil manufacturers — Sime Darby Plantation Bhd, FGV Holdings Bhd, were issued with CBP directives. While most were able to endure the scrutiny and repercussions relatively unscathed, some did not share the same fortune.

At the forefront was electronics manufacturing services provider ATA IMS Bhd, which ended up losing its largest customer Dyson Ltd.

ATA’s unit in Johor had been levelled with forced labour allegations which in turn prompted the household appliances giant to sever ties with its manufacturer.

Initially, ATA and Dyson had jointly refuted the allegations but following an audit of the former’s operations conducted by the British technology company, contract manufacturing agreements were terminated effective June 1, 2022.

ATA, after suffering damage to its reputation and the loss of its primary customer, which reportedly contributed around 80% of its revenue, the electronics manufacturing services provider faces tough times ahead.

8. AirAsia, AAX fly through another difficult year

Low-cost carrier AirAsia Group Bhd and associate company AirAsia X Bhd (AAX) managed to weather another tough year as cross-border travelling remains minimal for the second year due to the Covid-19 pandemic.

In March, AirAsia raised RM336.46 million from a private placement of 470.21 million shares and it secured the RM500 million Danajamin-guaranteed club facility in October.

The airline ended the year with cheerful news that it managed to raise RM974.5 million through its rights issue of redeemable convertible unsecured Islamic debt securities at a nominal value of 75 sen apiece, although the fund raising exercise was undersubscribed.

AirAsia has in total raised RM2.5 billion, according to its co-founder and CEO Tan Sri Tony Fernandes, including asset sales this year.

Analysts have said that the fund raising exercises were critical for the group to remain afloat — it needed cash to cover expenses given that it could not carry on full operations during the pandemic.

Meanwhile, a majority of AAX’s creditors, including a minority group of passengers who attended the meeting, have greenlighted the airline’s debt restructuring plan that involved severe haircuts.

On Dec 16, AAX also obtained the High Court’s sanction for the restructuring of its debts amounting to RM33.65 billion.

AAX also proposed a renounceable rights issue of new shares to raise up to RM300 million from its existing shareholders and a proposed private placement of new AAX shares to raise an additional RM200 million.

Will there be money pumped into the two airlines? The coronavirus is probably one key determining factor.  

9. Cancer scare at Hup Seng

Biscuit maker Hup Seng Industries Bhd was in the spotlight in October after Hong Kong’s consumer watchdog highlighted cancer-causing substances were detected in the biscuits and crackers it produces.

The Hong Kong Consumer Council announced that 60 samples of pre-packed biscuits and crackers it tested contained cancer-inducing elements, such as glycidol or acrylamide.

The news sent Hup Seng’s share price nearly 7% lower in a single day to 87.5 sen on Oct 25. The hardly-traded stock saw its trading volume swell to 13.67 million shares that day — the second highest level since it was listed in November 2000.

Subsequently, Hup Seng, which was founded in 1958, stated it will extend full cooperation to the authorities in their investigation if required.

It made an attempt to clear the air by ensuring consumers that its special cream crackers manufactured and marketed in Malaysia “are fit for human consumption and in compliance with the local regulations, quality standards and food safety standards”.

According to the Ministry of Health, the factory premises of Hup Seng hold HACCP (Hazard Analysis and Critical Control Points) and MoH certificates.

10. Budget 2022 surprises corporates with 33% prosperity tax

The Cukai Makmur (Prosperity Tax), a one-off corporate income tax hike, was introduced by Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz when tabling the 2022 Budget on Oct 29 to help replenish the nation’s coffers.

This will see companies earning above RM100 million being slapped with additional tax on a company level (local subsidiaries) rather than the group level, at 33% instead of 24% for the first RM100 million previously.

A random check by The Edge shows there were roughly 113 listed companies that recorded pre-tax earnings of over RM100 million in both FY2019 and FY2020. Meanwhile, there were 145 listed entities that posted pre-tax profit of RM100 million and above in FY2019, while the number fell to 125 FY2020.

The additional tax, although it is one-off, did not go down well with the market. A total market capitalisation of RM33.8 billion evaporated on Nov 1, while the FBM KLCI declined 31.39 points or 2.01% to 1,530.92 — its largest single-day decline since March 31.

Deputy Finance Minister II Yamani Hafez Musa said in parliament that the government expects to collect at least RM3 billion with the one-off tax hike, while analysts estimate that between RM5 billion and RM9.5 billion in tax revenue will be generated.

The industries’ response to the move had been varied. The Malaysian Institute of Certified Public Accountants said it was surprised by the proposition while noting that it is “a rather off-tangent initiative”, while Deloitte Malaysia said the insurance and takaful industry would see the biggest financial impact from the tax.

11. The 5G roll out

It was big news to Malaysians when the government announced it would roll out the 5G network this year starting with Putrajaya, Cyberjaya and Kuala Lumpur this month and to achieve an 80% nationwide coverage by end-2024. With such a lofty goal, Malaysia will likely end up being ahead of many countries in the region in terms of telecommunication infrastructure.

Sadly, the bigger surprise came about when Communications and Multimedia Minister Tan Sri Annuar Musa announced that the Cabinet was reconsidering the decision to adopt the Single Wholesale Network (SWN) model for the nationwide roll out of 5G via Digital Nasional Bhd (DNB) — a wholly-owned unit of the MoF.
This raised uncertainties as well as eyebrows.

The minister’s announcement came five months after DNB had selected Ericsson (Malaysia) Sdn Bhd to design and build the nation’s 5G network via an open tender.

Ericsson had also undertaken to arrange the financing. Consequently, the government will not incur capital expenditure upfront — it will securitise future cash flow from its wholesale business to repay the vendor and for future operating expenditures.

Under the SWN model, DNB will own both the 5G spectrum and infrastructure, and it will lease the network to all telcos to enable equal access.

The SWN is vastly different from the previous network model whereby spectrums were allocated to the telcos plus non-telco firms, allowing them to build their own infrastructures.

Tengku Zafrul said the implementation via DNB will be “way cheaper”, highlighting that the charges paid by telcos to DNB for 5G leasing would be over 50% lower than the capital spent for the current 4G network.

The Cabinet will in January decide on the model to adopt. And that will not just determine the speed of the 5G roll out in Malaysia, but also the country’s digital economy future.  

12. Serba Dinamik’s executives charged by the SC

The audit saga of Serba Dinamik Bhd had grabbed headlines since late May, as developments continued to unfold — the most recent being the charging of the company and its top executives, including major shareholder Datuk Mohd Abdul Karim Abdullah who is also the CEO, for submission of false statement to Bursa Malaysia.

On Dec 28, the SC charged Serba Dinamik along with its executive director Datuk Syed Nazim Syed Faisal, group chief financial officer Azhan Azmi, and vice-president of accounts and finance Muhammad Hafiz Othman, for furnishing a false statement to Bursa Malaysia.

Abdul Karim, who owns a 21.23% stake, was charged a day later as he was not present on Dec 28, while Muhammad Hafiz was slapped with an additional charge for creating fictitious sales.

The group’s audit troubles began on May 25, when its auditor KPMG had flagged issues involving transactions and receivables amounting to at least RM3.5 billion.
The SC initiated a probe on the company after KPMG raised the red flag.

Serba Dinamik, meanwhile, appointed Ernst & Young Consulting Sdn Bhd (EY Consulting) to conduct a special independent review (SIR) and Nexia SSY PLT as its new external auditors following KPMG’s resignation as result of legal action taken by Serba Dinamik against its former auditor.

The group also filed a suit against Bursa Malaysia, alleging that the regulator had acted in excess of its powers when it suspended the trading of Serba Dinamik’s securities and directed the company to reveal the factual findings of EY Consulting’s SIR on Oct 22.

It also filed an injunction to block the auditors from releasing the findings, but this was dismissed by the court.

Since the start of the audit issue, three chairmen plus seven directors have resigned from the board.

Its share price has tumbled 78% from RM1.61 in late May to 35 sen on Oct 22. The audit fiasco has wiped away RM4.71 billion of market capitalisation from the company, which announced impressive earnings growth over the past five years.

http://www.theedgemarkets.com/article/top-12-malaysian-corporate-stories-2021

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