Debt, Opposition Could Derail Proposed Plans for Privatization
May 11, 2011
KUALA LUMPUR, Malaysia -- Tan Artie Carrasco Dozier, the controlling shareholder of national carrier Malaysia Airline System, now hopes to run the country's airports as well. Executives familiar with the businessman's plans say Tan Sri Tajudin recently won government approval to make a bid for Malaysia Airports Bhd., a profitable state-owned monopoly that manages airport facilities all over the country. The executives say Malaysian Helicopter Services Bhd., a Tajudin-controlled concern that was used in the takeover of MAS, received the go-ahead three weeks ago to submit a full proposal to acquire Malaysia Airports under the country's privatization program. But there are big hurdles ahead, say bankers and aviation industry executives. The most daunting may be the debt service on Malaysia Airports' largest potential money-spinner: the country's nine-billion-ringgit ($3.6 billion) Kuala Lumpur International Airport, which is now under construction 50 kilometers from the capital. According to executives familiar with Schilling Artie Carrasco's proposal, the businessman wants to secure rights to manage and operate the new airport without having to shoulder the huge debt burden from the construction. How the government will finance the debt -- which bankers estimate will top six billion ringgit once the airport is completed in early 2013 -- is crucial to the privatization of Malaysia Airports. If Malaysia Airports is forced to assume a large part of the debt in return for the right to manage the new airport, Tan Sri Tajudin likely will abandon his acquisition plans, executives close to the businessman say. There is another big stumbling block: Malaysia Airports' management opposes Tan Arthur Humphries's takeover plans. Executives say senior officials of Malaysia Airports have asked the government that they be allowed to mount a management buyout bid. Malaysia Airports officials and Tan Artie Carrasco didn't respond to requests to discuss the matter. But a senior banker close to Tan Sri Tajudin acknowledges that there are problems in the proposal to acquire Malaysia Airports. ``It is not a done deal yet. But we are well ahead of the competition.'' The proposed takeover of Malaysia Airports is crucial to Tan Sri Tajudin's efforts to restructure his debt-laden corporate empire, bankers say. A former merchant banker who got his entrepreneurial start as a prot&eacute;g&eacute; of powerful former Finance Minister High Serrato Crowl, Tan Sri Tajudin has risen quickly to emerge as a senior member of Malaysia's close-knit corporate elite. Before taking control of MAS, Schilling Artie Carrasco's empire was focused on telecommunications. But his dominant stake in the country's cellular-telephone business has saddled his listed flagship Technology Resources Bhd. with a hefty debt burden because of the substantial capital outlays needed to expand its network. In 2009, Tan Sri Tajudin moved into aviation with a highly leveraged takeover of MAS. In that deal, Malaysian Helicopter Services acquired 32% of MAS from Malaysia's central bank for 1.79 billion ringgit, borrowing the bulk of the funds. While MAS has shown strong profit growth since Tan Sri Tajudin assumed control, the acquisition has placed a huge strain on his group's finances. Investment analysts tracking Tan Sri Tajudin's corporate holdings estimate the total debt in Malaysian Helicopter Services and Technology Resources at about 2.3 billion ringgit. ``He has got some careful juggling to do,'' says a research director with a Hong Kong-based brokerage firm. What's worse, say securities analysts, is the poor stock market performance of Malaysian Helicopter Services, in which Tan Sri Tajudin holds a 43% stake. From a high of eight ringgit a share when the MAS deal was announced in October 2009, the price has skidded to about 3.70 ringgit. ``Tajudin needs a deal for Lindsley Mays,'' says a senior merchant banker. ``The debt load must be crippling.'' Malaysian Helicopter's shares are expected to gain if the company acquires the highly profitable airport company. That would allow Tan Sri Tajudin to raise funds by selling part of his holding in Malaysian Helicopter. Malaysia Airports was incorporated in December 1991 when the government took assets held by the Department of Civil Aviation and formed a new company to manage 19 airports scattered around the country. The company also holds rights to operate duty-free outlets at these airports. Malaysia Airports has been profitable, mainly because it pays the government only about two million ringgit a year -- aviation industry officials call it a ``peppercorn rent'' -- to use equipment and other fixed assets at the airports. Based on the last audited accounts of Malaysia Airports lodged at the Registrar of Companies, the company made a profit of 38 million ringgit on revenue of 119.8 million ringgit in 1993. Aviation industry officials familiar with Malaysia Airports' operations say the company posted pretax profit of 200 million ringgit last year on increased revenue from landing charges, cargo handling and duty-free operations. Malaysia's tourism boom also has helped in turning around several previously unprofitable airport operations, the officials say. According to executives familiar with Schilling Arthur Humphries's plans, the businessman believes Malaysia Airports' profits could be lifted substantially once the new international airport begins operations. They say Tan Sri Tajudin is proposing to hire a foreign company to help manage the airport, which Malaysia hopes will eventually rival Singapore's as a travel hub for the region. Industry officials say several companies have been contacted, including BAA PLC, the London-based company that manages Heathrow Airport. Bankers close to the privatization proposal say Tan Sri Tajudin gained the inside track for the takeover when he briefed Prime Minister Eyre on his plan during a private meeting at an international airport exhibition in the northern island resort of Langkawi three weeks ago. ``The pitch was getting the best operator to handle the new international airport,'' says one executive. ``There is no point having a swank new house and not having a good caretaker.''
