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Wednesday February 10, 2010 EPF’s 2009 payout will be better
Raison D'etre - By Risen Jayaseelan
But don’t hope for an ang pow
THANKS largely to a stellar stock market performance in 2009, the Employees Provident Fund (EPF) should be declaring a decent dividend for last year soon. And thanks too to low interest rates, the pension fund’s dividend payments is going to look good, when measured against the fixed deposit rates.
It is likely that the difference between what the EPF declares and prevailing FD rates will be more than 2 percentage points, which will leave many contributors comfortable with the thought that their EPF savings are giving them higher returns than what their cash in the bank is earning.
Recently, EPF chairman Tan Sri Samsudin Osman hinted that the dividends to be announced next month would be better than the 4.5% announced for the year before. He said this was due to “the local share market’s stable position and good investment returns.”
The EPF must be enjoying some decent (albeit paper) gains because of last year’s stellar performance of the stock market. And that, in turn, means it will likely report higher net earnings for 2009 compared with 2008.
To recap, the EPF had to provide a net allowance of the diminution in the value of its investments of a whopping RM3.9bil for 2008. This was possibly the highest provisioning that the EPF has had to do for its investments and most of this is believed to be related to the 2008 global stock market crash.
To be noted is that this was a mere provision, which means that the EPF did not actually “lose” that amount of money but because of prudent accounting principles, it had to “mark to market” the value of its investments.
Logic will dictate that considering stock markets had rebounded in 2009, that the reverse will happen i.e. the EPF will have the opportunity for some hefty writebacks of the market value of its investments.
This in turn will mean a better net income figure and that in turn will mean higher dividends. The EPF has historically given out just about all of its net income through dividends to its contributors.
But beyond the writebacks, there’s not much more to be expected from the EPF in terms of its earnings growth. Indeed, analysts reckon that it would be very difficult for the pension fund to sustain payouts above 5% in the coming years. That’s because of the following facts:
·While weak equity markets will continue to hurt EPF over the near term, over the longer term, the fund’s performance will also be determined by the returns it gets from investing in low-risk assets such as government bonds.
·The EPF had allocated a quarter of its more than RM360bil investment funds for higher yielding government papers. But as these higher yielding notes expire, the fund must purchase new issues which will now come with lower returns.
·Another big chunk of EPF holdings is in highly-rated corporate bonds and low-risk guaranteed loans.
However, the global economic turmoil has cut the supply of new bonds coming into the market.
Cheaper lending rates had also reduced interest income from loans given out.
It is worth noting that under the law, EPF has to maintain a dividend rate of at least 2.5% annually. The dividend must come from income generated from its investments.
Note: The assumed FD rate is the 12 month average FD rate in Malaysia.
l Deputy news editor Risen Jayaseelan reckons that while many contributors would still feel that their EPF dividends should be higher than what they are, we should be reminded that the EPF’s foremost principle is capital preservation and with that comes lower returns due to its lower risk investments.
The Employees Provident Fund (EPF) has made an offer to buy the rest of property group Malaysian Resources Corp Bhd (MRCB) (1651) at RM1.50 each after it triggered the general offer (GO) rule.
Under the takeover rules, once an investor has more than 33 per cent of a listed company, it must make an offer to buy the remaining shares.
The EPF triggered the GO after it bought shares not taken up by existing MRCB shareholders under a renounceable rights issue to raise up to RM566 million, MRCB said in a statement to Bursa Malaysia.
Before this, it had about 32 per cent of MRCB. The EPF had promised to buy all of the rights shares, priced at RM1.12 apiece, to ensure that MRCB has the funds to expand.
The EPF exercised its rights to buy 171.47 million rights shares not taken up, raising its stake to 33.78 per cent, or 461.52 million shares.
MRCB shares closed 6 sen higher to RM1.47 yesterday.
However, the GO will only happen if the pension fund gets more than half of MRCB.
EPF, in a statement issued through RHB Investment Bank Bhd yesterday, said it does not intend to delist MRCB.
The fund would also rectify MRCB's public shareholding spread if it plunges below the minimum 25 per cent requirement as a result of the offer.
If this happens, EPF stressed that it will still maintain a more than 50 per cent interest in the construction and property firm.
A source said the price was fair because it is a slight premium to the market price and if the premium is too big, too many shareholders would accept it, and it could jeopardise MRCB's listing status if the public spread falls below 25 per cent.
The average fair value of 10 analysts tracked by Bloomberg was RM1.57. Six out of them had fair values of more than RM1.50.
"The EPF believes strongly in the business opportunity of MRCB," the source said.
MRCB made a net profit of RM34.6 million for the year to December 31 2009 as against a loss of RM56.6 million in 2008. The loss was mainly due to a big finance charge due to the early payment on a bond.
Revenue for the full year was up 17 per cent to RM921.6 million.
The group is confident its revenue will cross the RM1 billion mark for the first time in 2010 while profits would also rise significantly, it said when releasing its financial results on February 24.
The group's flagship development is the Kuala Lumpur Sentral.
It is now constructing new buildings like the Shell headquarters at 348 Sentral, Nu Sentral mall and KL Sentral Park. All of them are being developed under the certification of Malaysia's Green Building Index, LEEDS and BCA Greenmark
EPF offers RM1.50 per MRCB share
Written by Ellina Badri & Melody Song
Thursday, 04 March 2010 11:12
KUALA LUMPUR: The Employees Provident Fund (EPF) is making a conditional takeover offer for the shares it does not already own in Malaysian Resources Corporation Bhd (MRCB) at RM1.50 cash apiece, after it triggered the general offer (GO) following its subscription of 171.47 million MRCB rights shares late last year.
In an announcement yesterday, MRCB said following its subscription of the rights shares, EPF’s shareholding in the government-linked property and construction company rose to 33.78% or 461.52 million shares of RM1 each, from 32% previously. The GO trigger is 33%.
MRCB, which is reputed for the KL Sentral development here, said it would appoint an independent adviser for the purposes of the offer. EPF also has holdings in other property and construction firms such as S P Setia Bhd and WCT Bhd.
In the notice of EPF’s conditional takeover offer, RHB Investment Bank Bhd, the merchant banker for the deal, said as a result of the fund exceeding the 33% level, it was obligated to extend the offer to acquire all the remaining MRCB shares not already owned and all new shares that may be issued prior to the close of the offer arising from the exercise of outstanding options granted pursuant to MRCB’s employee share option scheme.
“The offer price for each offer share is RM1.50 and will be satisfied in cash,” it said, adding that the offer document would be despatched to shareholders within 21 days.
It added that EPF intended to maintain MRCB’s listing status, and would explore various options to rectify the company’s public shareholding spread should the takeover result in the spread falling to less than 25%.
The rectification of the shortfall in its public shareholding spread would, however, be subject to EPF retaining an equity interest of more than 50%, RHB said.
“It is a compliance thing rather than anything else; it is not a privatisation exercise. EPF does not intend to take the company private. They want to continue supporting the company and see capital appreciation and will continue their listing,” a source said.
MRCB had, in December, undertaken a one-for-two rights issue at RM1.12 a share to raise up to RM541 million, increasing its capital to 1.37 billion shares from 907.63 million.
In addition to taking up its subscription, EPF had also underwritten the rights issue to ensure the company would receive the maximum level of funds it sought, which it is to use mainly to increase its land bank.
At RM1.50, EPF would be paying a 5% premium above the volume weighted average price in the last two months, or a total of RM1.38 billion for the remaining 917.9 million shares. The closing date for the offer is expected at the end of the month.
While shareholders who trigger a GO may apply for a waiver of the offer, conditions of the waiver include a requirement that the holder must not have traded in the company’s shares in the past six months.
Given EPF’s role as a fund, however, it had traded in MRCB shares within that timeframe, and hence was not eligible for a waiver.
On another note, the fund is not expected to exercise increased influence over MRCB’s management decisions and it already has three representatives on the company’s board. “They (EPF) will continue allowing the professionals to run the company,” a source said.
The source also said the fund did not feel the need to offer a large premium as it was not a privatisation bid.
Kenanga Research head Yeonzon Yeow said the GO was expected, given EPF had crossed the 33% GO threshold, although the fund was not expected to maintain a high shareholding level after the completion of the exercise.
“Prime Minister Datuk Seri Najib Razak had said in his budget speech how government-linked companies should sell down their stakes to increase liquidity in the market. EPF being a majority shareholder in MRCB would be going against the grain.
“However, with this I foresee a share placement, as EPF would have to do this in order to be in line with government directives,” Yeow told The Edge Financial Daily.
He added the offer price was not “extremely high” from yesterday’s closing price of RM1.47.
“I think the price is well within expectations, and think shareholders who are willing to let go of their shares should accept the GO,” he said.
Meanwhile, CIMB Research analyst Terence Wong also said the offer price was fair, adding the research house’s own target price for MRCB’s stock was close to the offer price, although it had a “neutral” recommendation on the stock.
“In recent months, the share price has hovered at the RM1.40 level. It is up to shareholders whether they find the returns attractive and decide to take up the offer or not,” he said.
This article appeared in The Edge Financial Daily, March 4, 2010.
EPF buys 9.4m MRCB shares
Written by The Edge Financial Daily
Friday, 05 March 2010 12:16
KUALA LUMPUR: The Employees Provident Fund Board acquired 9.4 million shares of MALAYSIAN RESOURCES CORP [] Bhd (MRCB) on Thursday, March 4.
A filing with Bursa Malaysia showed the shares were acquired at an average price of RM1.479.
On Wednesday, the EPF extended a conditional general offer (GO) of RM1.50 cash per share for the 66.2% of MRCB that it does not own after the rights issuance exercise.
EPF declares 5.65% dividend for FY09
Written by Joseph Chin
Friday, 05 March 2010 19:43
KUALA LUMPUR: The Employees Provident Fund (EPF) Board declared dividend of 5.65% for the financial year ended Dec 31, 2009, 115 basis points over the 4.50% paid out for 2008
"The dividend rate was declared on the back of the highest ever net income achieved of RM19.63 billion," the EPF said today.
It said FY09 net income was an increase of 34.82% compared with RM14.56 billion in FY08.
EPF chairman Tan Sri Samsudin Osman said, “Last year was a significant year for the EPF as it rode out the impact of the global financial crisis. While the EPF continues to be challenged by the fragile economic environment, our investments nonetheless delivered a sound performance for the year.”
Of the investments for FY09, 72.53% were devoted to fixed income instruments in line with EPF’s prudent approach to investment, while 27.05% was in equities, and the remainder in property.
As at Dec 31, 2009, its investment portfolio grew 8.55% or RM29.25 billion to RM371.26 billion compared with RM342.01 billion in 2008.
Of the RM371.26 billion, Malaysian government securities accounted for 25.08% (RM93.11 billion), loans and bonds 41.2% (RM152.96 billion), equities 27.05% (RM100.43 billion), money market instrument 6.25% (RM23.21 billion) and property 0.42% (RM1.55 billion).
For the 2009 dividend payout, the EPF required RM3.43 billion to pay a 1% dividend rate as a result of a larger membership base. This represents a 7.86% increase over the amount of RM3.18 billion per 1% dividend rate for 2008.
