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Sunday, May 20, 2007


An interesting recent news on AMANMFB with something about ICAP and closed-end funds in general after my May 15 posting. Here, I will selectively compare both with OSKVI. My highlighting and italic comments below.


Amanah Millenia's defensive moves
Updated : 17-05-2007
Media : The Star
Story By : C.S. TAN via www.biznewsdb.com

PETALING JAYA: Closed-end fund Amanah Millenia Fund Bhd, which is facing a resolution for its liquidation, is offering a few carrots to its shareholders to vote against such a move.

Firstly, it has proposed a cash tender offer of up to 10% of the company twice a year. That would enable shareholders to sell their shares back to Amanah Millenia, and cash out completely over five years, if they wish to do so.

Secondly, it proposed to reduce its management fee to 0.75% a year from the existing 1.25% of the fund's net asset value. This represented a 40% reduction from the current fee, Amanah Millenia announced on Tuesday.

"These are measures to encourage shareholders to vote against the resolution, and allow them to stay in business,¨ a fund manager said. Amanah Millenia's articles of association state that on its 10th anniversary, which is this year, a resolution has to be tabled for shareholders to decide whether they want the fund to continue for another five years, or to discontinue, which is to liquidate.

The company, listed on the Bursa Malaysia main board, said that in its AGM next month, its board would propose the resolution, in accordance with its articles.

The writing on the wall is that some institutional shareholders that have taken up substantial stakes in the company, have a probable objective to close the fund. In this region, it is fairly common for institutional funds that have bought stocks of closed-end funds that are trading at a sharp discount to their net asset values (NAV) to vote for their liquidation.

In OSKVI's case, there is no similar buying by foreign institutional funds nor complete liquidation plans (as far as I know). Instead, OSK - the parent - has been steading acquiring OSKVI shares over the last 3 years. It's annual reports show the following percentages of shares owned by OSK:
- 31/12/2004 - 56.2%
- 31/12/2005 - 59.2%
- 31/12/2006 - 65.4% - quite a significant addition.

Since 31/12/2006, OSK continues to accumulate OSKVI shares 3 times with no disposals yet:
- 10 Jan 2007 - Buy 389,000 OSKVI shares at $2.66
- 28 Feb 2007 - Buy 408,000 OSKVI shares at $2.47
- 5 Mar 2007 - Buy 186,400 OSKVI shares at $2.28

The increasing %s does not necessarily mean that OSKVI intends to privatize the company. But it doesn't preclude the possibility of that happening, since it makes it easier, should a need arises to do so in future. Naturally, a company like OSKVI would represent great value to a private owner, who can buy $1 worth of business for far less than $1 (or say $0.65 as of last Friday), and the $1 is quite likely (almost certain??) to grow in future.

It is also interesting that the last 2 parent purchases happened on 28 Feb 2007, and 5 Mar 2007, both dates coincides with the period when OSKVI went on "sale" during the end February correction.

Laxey Partners Ltd, a fund management company registered on the Isle of Man, first declared its interest of a substantial stake of 5.05% in Amanah Millenia in March last year. That was when the share price was around 80 sen, a hefty 29% discount to its NAV of RM1.03.

Since then, Laxey has kept buying the stock until it became the second largest shareholder, with a stake of 16.2%.

Most closed-end funds trade at a discount to their NAVs because liquidating them would not result in the realisation of their NAVs, especially in funds that invest in thinly traded small-cap stocks. A sell-off of such stocks would cause their share prices to drop.

In the case of Amanah Millenia, which is mainly invested in big-cap stocks, any sell-off can be done easily. As such, a liquidation should lead to a conversion from shares into cash that is close to the NAV.

The discount in Amanah Millenia's shares has narrowed from a few months ago but it is still substantial. The stock closed at RM1.07 yesterday against its NAV of RM1.215 on May 11, a discount of over 13%.

That showed that Amanah Millenia's NAV has gained only 21.5% after 10 years. That is partly due to its launch just before the regional financial crisis broke out in 1997.

The only other listed closed-end fund, iCapital.Biz Bhd, is in contrast, traded at a slight premium to its NAV. The stock closed at RM1.64, just above its NAV of RM1.63 on May 9. There is a premium mainly because the fund has performed exceptionally well since its relatively recent launch.

It should be added that when the market values ICAP at a premium, it means there is expectation of outperformance in the future. Past outperformance does not guarantee future outperformance, but it does improve perception and the odds.

In OSKVI's case, I feel there is a good chance its NAV may increase faster than ICAP and AMANMFB over the next 2-3 years. I think if the market continues to under-value OSKVI persistently, either OSKVI is forced to realize its gains (at closer to market value than outdated book value) and distribute the cash to shareholders, or the parent might take the company private, both of which should be good for OSKVI shareholders.

Amanah Millenia said in its latest quarterly report it is not intended that the company should have a limited life,¨ but shareholders have the opportunity to review that this year, and at five-year intervals after that.

It is not known, however, how its largest shareholder, Permodalan Nasional Bhd (PNB), would vote at the AGM. It is surprising that PNB has steadily trimmed its stake instead of raising it to vote against the resolution to liquidate.

PNB's stake in Amanah Millenia stood at about 20% at the start of the year but this has gone down to 17.3% early this month.

The Employees Provident Fund (EPF) owned about 7.7% of the fund at the start of the year but had gradually sold down its share and ceased to be a substantial shareholder last month.

Disclaimer: I own OSKVI, ICAP and AMANMFB, and naturally, my view may be biased. At this moment, I do not intend to add any more OSKVI, unless Mr Market presents to me an even more compelling opportunity. I intend to use TA to supplement my trading decisions. Please use your own judgement and invest (buy, hold, sell) at your own risk. Please also read past disclaimers and postings for context.

1 comment:

grahamsmun said...

I think PNB would not vote agst liquidation Amancap bcos of Khalid factor.
Point to consider for investors is the liquidation premium would be not much bcos the price and stockholding value had norrowed with only 13% premium.
I suspect we need to forego about 5%-8% here if the fund is liquidated some force selling reqn.
Plus waiting period about 6 to 9 mths a potential return of 10% to 15% p.a.