EPIC/AZRB ... Aug10

Sources say state controlled Terengganu Inc Sdn Bhd is planning to privatize its
40.13% unit EPIC.

Terengganu Inc has approached some of the other larger shareholders of EPIC to buy their equity, which will trigger a MGO and lead to a privatization.

Other than Terengganu Inc, the other substantial shareholder of EPIC is Terengganu based construction outfit AZRB which has a 21% stake in EPIC. Amanahraya Trustees Bhd, meanwhile holds 4.7% stake for Public Bank’s Bhd Islamic Opportunities fund and Islamic Treasuries Fund. Great Eastern Life Assurance Bhd holds another 4.5% equity. Another notable shareholder is private company TIS’ ATA’ Ashar Sdn Bhd, which has 3.85% stakes. Other shareholders all have below 1% shareholding in EPIC.

Details such as the pricing of the offer were not available. EPIC however had net asset per share of RM2.04 as at end June 2010.

EPIC is a potential privatization candidate is based on its strong cash flow and balance sheet appeal.

However the success of the privatization will depend on AZRB. It is noteworthy that AZRB bought into EPIC in Oct 2007 at rm2.40 a share, forking out some RM82 million for LTH’s 34.4 million shares. Since the acquisition from LTH, AZRB has marginally increased its stake to 21.3%.

However, AZRB incurred borrowings in acquiring LTH’s shares, which means the company has to make interest payments, which will nudge up its holding cost. The privatization of EPIC is a very political issue. AZRB is a Terengganu based contractor, and it is also known to have political clout, so it is not such ac easy task if AZRB is not agreeable.

It has been buying back its shares since end May 2010 and has close to 1.5 million treasury shares.

For six months ended June 2010, EPIC posted a net profit of RM24.5 million on the back of RM109 million in revenue.

During six months in revenue, EPIC had a net cash flow from operating activities of RM22.4 million, while its deposits, cash and bank balances amounted to RM91.6 million. The company’s short term borrowings amounted to RM6 million while its long term debt obligations were RM19.7 million. Its shareholders funds stood at RM356 million as at end June 2010.

News of EPIC being privatized had been around since 2009.

EPIC main assets are its 99.1% stake in Pangkalan Bekalan Kemaman Sdn Bhd, which has its mainstay in supply base operations for oil and gas industry, and Konsortium Pelabuhan Kemaman Sdn Bhd in which it has 61% shareholding.

Konsortium Pelabuhan Kemaman operates the East Wharf and Liquid Chemical Berth at Kemaman Port on a 60 year concession, which started in Oct 2006. The remaining 39% in Konsortium Pelabuhan Kemaman is owned by construction giant IJM Corp Bhd.

EPIC has purchased 2.6 million of its own shares, paying almost RM4.3 million in the buyback exercise.

The top 30% shareholders controlling more than 78% of its share base.