Issue 28

Govt has received four offers to revive Malaysia Airlines, says Mahathir

The Malaysian government has received four proposals to rescue the ailing Malaysia Airlines, although no decision has been made yet, said Prime Minister Mahathir Mohamad. Mahathir was quoted by media reports as saying that the proposals are mostly from local entities. 

He said the government is prepared to listen to all proposals, including offers of a takeover and for collaboration with other airlines. Qatar Airways is said to be the sole foreign company to have sent in a proposal for a takeover of Malaysia Airlines. 

Mahathir had laid out two conditions for interested parties to take over the national carrier – to preserve the airlines’ national identity and that the takeover should not result in any retrenchment. The government, he added, is also willing to give up its majority stake in Malaysia Airlines, though it will ensure that it still “has a say” in the running of the airline. 

“The government does not want to be bailing out Malaysia Airlines so many times. But, at the same time, the government wants to have a say. So, we may not have a majority share, but we have to preserve some government role,” said Mahathir, who is also the chairman of Malaysia’s sovereign wealth fund Khazanah Nasional Bhd. Last week, a group of businessmen led by former AirAsia Group Bhd chairman Pahamin Ab Rajab was said to have expressed interest in helping the Malaysian government turn around Malaysia Airlines. 

Pahamin was reportedly eyeing a 49 per cent stake in the airline, while the rest will be held by Khazanah, which is currently the sole shareholder of Malaysia Airlines. AirAsia Group co-founder and CEO Tony Fernandes has said that he is not keen to take over the ailing national carrier and would like to focus on his own company. Loss-making MAS has repeatedly sought to turn itself around since it was privatised by Khazanah in 2014. 

It has been at the centre of two aviation tragedies – the disappearance of MH370 and the shooting down of MH17. Earlier this year, Khazanah demanded that the airline produce a turnaround plan after the fund poured 6 billion ringgit ($1.5 billion) into the company to make it profitable. 

The fund’s managing director Shahril Ridza Ridzuan said the fund’s investment in the airline remains relevant despite the airline missing its target to break even last year, causing Khazanah a 7.3 billion ringgit ($1.78 billion) impairment loss.


From – Deal Street Asia


WeWork Labs launches foodtech incubator, accelerator in Thailand

WeWork Labs has launched a foodtech incubator and accelerator in Thailand in partnership with the National Innovation Agency (NIA), SET-listed Thai Union Group PCL, and Mahidol University’s Science Faculty, according to an announcement. 

Called SPACE-F, the programme aims to build a sustainable ecosystem to nurture foodtech startups in Thailand. The 15-month incubator track is for early-stage startups while the accelerator track will target growth-stage startups. The accelerator programme will be from three to eight months. 

Open to both Thai and non-Thai nationals, the programme is accepting applications till July 31, 2019. The programme is looking to induct innovative startups in the areas of health and wellness; alternative proteins; smart manufacturing; packaging solution; novel food and ingredients; biomaterial and chemical; restaurant tech; food safety and quality; and, smart food services. 

“By providing value beyond space, we will be mentoring startups in SPACE-F, helping them with the tools and knowledge they need to succeed, and leveraging our global expertise to support them through the programme,” said Adrian Tan, Head of Labs, Southeast Asia for WeWork. 

Founders will have opportunities to meet qualified investors including Thai Union Group PCL and other VCs and corporate VCs. WeWork is a platform for creators, providing more than 466,000 members around the world with space, community, and services through both physical and virtual offerings. 

WeWork Labs gathers promising early-stage startups and provides them with space, community, and programming to help them succeed. Since its launch in early-2018, WeWork Labs has set up locations in the US, South Korea, Brazil, Israel and India. WeWork launched WeWork Labs in Singapore, marking its foray in Southeast Asia, in end-2018.

From – Deal Street Asia

Top funds expect Philippine stocks to climb 25% over next 3 years

Managers at the three best performing Philippine equity funds see a much rosier second half for Rodrigo Duterte’s term as president, forecasting that the benchmark stock index will climb about 25% over the next three years. 

The Philippine Stock Exchange Index gained just 2.6% in the first half of Duterte’s term, which started at the end of June 2016, and was among Asia’s worst performers in that span. After surging to a record in January 2018, the gauge collapsed amid rising inflation, a weakening peso and the U.S.-China trade war. 

But cooling prices and interest rate cuts have fueled an 18% rebound since November, and reawakened the bulls. “We are on a clear economic growth path and the drivers are very clear,” said Julian Tarrobago, head of equities at ATR Asset Management Inc. “Consumption, accommodative monetary policy and a massive increase in infrastructure spending pave the ground for growth acceleration,” said Tarrobago, whose ATRAM Alpha Opportunity Fund has returned 26% under Duterte. 

The president launched a 9 trillion peso ($176 billion) program to build airports, railways, roads and bridges under his six-year term. Fund managers see this push combined with the central bank’s monetary easing stoking consumer spending and speeding up economic growth. 

Gross domestic product rose 5.6% in the first quarter of 2019, the slowest pace in four years. “Faster economic growth is to be expected, and this will be more spread out given the infrastructure projects are in many places,” said Noel Reyes, chief investment officer at Security Bank Corp. 

“As long as GDP grows more than 6%, any selloff means investors are in a panic and selling without factoring the fundamentals,” said Reyes, whose SB Peso Equity Fund gained 14% in the first half of Duterte’s term. 

Tarrobago, Reyes and Gerard Abad, chief investment officer at AB Capital & Investment Corp., all say the stock benchmark PSEi could reach as high as 10,000 before Duterte’s term expires in June 2022. 

While the gain in Philippine equities should be broad-based, property, infrastructure and consumer staples are likely to outperform the market, they said. 

Foreigners have purchased a net $400 million in the nation’s stocks this year, after selling more than $1 billion in 2018, according to data compiled by Bloomberg. The recent rally has driven the PSEi’s valuation to 16.5 times estimated 12-month forward earnings, compared with 13.3 times for the MSCI Asia Pacific Index. 

Still, Philippine stocks are trading below the 20-times level they reached in four rallies dating back to 2013. Possible external negative factors that could hamper further gains include higher oil prices, worsening of the U.S.-China trade war and geopolitical tension over Iran. At home, Duterte faces execution risks with his infrastructure drive and planned shift to a U.S.-style federal government structure. Positives could include further upgrades in the nation’s credit scores. 

AB Capital’s Abad says this is possible due to the infrastructure investment plans and greater certainty of passage for fiscal reforms including lower corporate taxes given Duterte’s stronger support in congress. Abad’s AB Capital Equity Fund climbed 13% in Duterte’s first three years. 

“A credit ratings upgrade is a strong message about the current state and prospects of the economy,” Abad says. “It’s an added catalyst for foreign investors not to pass up on Philippine equities. The market is yet to see its peak.”.

From – Deal Street Asia

AB InBev Asia unit calls off year’s largest IPO

Anheuser-Busch InBev said on Friday it will not proceed with the initial public offering of its Asia Pacific unit, Budweiser Brewing Company APAC Ltd, on the Hong Kong Stock Exchange. 

The company said the decision was due to “several factors, including the prevailing market conditions.” It had been set to be world’s biggest listing of 2019. The company had been seeking to raise up to $9.8 billion (£7.8 billion). 

The move, against the backdrop of a protracted U.S.-China trade war, set a downbeat tone for large Hong Kong listings, seen as a barometer for future large share sales, such as Alibaba’s Hong Kong listing. 

Budweiser APAC, whose portfolio of more than 50 beer brands includes Stella Artois and Corona, received offers for shares within its targeted range from hedge funds and private wealth managers but some large long-only U.S. investors, which are often prioritised in an IPO, offered below the HK$40 per share level, other people familiar with the matter said. 

IPOs on Hong Kong exchanges are only able to price up to 10% below the target range without regulatory approval if the risk is flagged in its prospectus. This was not sufficiently highlighted in the Budweiser filing so AB InBev held firm on the HK$40 price, meaning some U.S. investors trimmed the size of their orders, sources said. The company’s executives and representatives from the deal’s co-sponsors, JPMorgan and Morgan Stanley, met in New York to discuss pricing after the books closed on Thursday. 

People familiar with the issue said it was struggling to secure enough demand from long-term investors. Typically investors put in orders for more shares than they actually expect to receive in an effort to ensure they get a good allocation. Deals where those investors end up with more than they really expected often trade poorly to begin with. 

All the sources who spoke to Reuters did so on condition of anonymity as they were not authorised to speak on the matter. Budweiser APAC was seeking to raise between $8.3 billion and $9.8 billion through the float, much of which will go towards paying down debt at its highly leveraged parent. 

Trading was set to begin on July 19. AB InBev, the world’s largest brewer, has been working to reduce a debt pile of more than $100 billion that it built up with the purchase of nearest rival SABMiller in late 2016. 

AB InBev has said it will reduce its net debt to EBITDA ratio to below 4 by the end of 2020 from 4.6 at the end of last year and that this is not dependent on the Asian flotation. It says the optimal ratio is 2. AB InBev stock, which has rallied 36% this year, is still down 11% over the last 12 months. 

It fell 1.5% on Friday. BIGGEST IPO THIS YEAR The company had positioned its Hong Kong listing as creating a champion in Asia-Pacific, where sales are growing as increasingly wealthy consumers turn to premium beer brands. 

Even at the low end of the price range, the IPO would surpass the $8.1 billion New York float of Uber in May, the biggest so far this year, Refinitiv data shows. 

The IPO was set to precede Alibaba’s plans to raise as much as $20 billion through a Hong Kong listing. Last month, logistics real estate developer ESR Cayman Ltd shelved its up to $1.24 billion Hong Kong IPO “in light of the current market conditions”.

From – Deal Street Asia

Japan’s Hitachi kicks off formal process for sale of $5.6b chemical unit

Japan’s Hitachi Ltd has started the formal process for the sale of its $5.6 billion (£4.5 billion) chemical unit with initial bids due in August, people familiar with the matter said, a deal that is expected to draw interest from global private-equity firms. 

Hitachi has asked potential bidders to submit first-round bids for Hitachi Chemical Co, four people said, declining to be identified as the information is not public. The initial round will close on Aug. 9, two of them said. 

Hitachi has hired Bank of America Merrill Lynch while Hitachi Chemical has retained Goldman Sachs Group Inc to advise on the deal, the two people said. 

Reuters reported in May that global private equity firms Bain Capital, Carlyle Group and KKR & Co are among the bidders for the unit, of which Hitachi owns 51.2 percent. Japanese companies are also expected to submit initial bids along with the three private-equity firms, the two people said. 

A Hitachi spokesman declined to comment. A spokeswoman for Hitachi Chemical said the company has not made any announcement on the issue. Goldman Sachs and Bank of America Merrill Lynch also declined to comment. The sale would be the largest corporate spin-off in Japan this year. 

Hitachi and other local firms are under pressure to focus on areas with growth potential and hike shareholder value. Hitachi is rare among big Japanese corporations for the active reorganisation of its businesses. It has sold off semiconductor equipment maker Hitachi Kokusai Electric and power tool unit Hitachi Koki, both to KKR. 

It also sold car navigation maker Clarion Co to France’s Faurecia SA. Doing so has reduced its so-called parent and child listings, the Japanese corporate tradition where large listed firms own big stakes of smaller, listed affiliates. Global investors have long called for those stakes to be sold down.

From – Deal Street Asia
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