'Fire sale' of profit-making MAHB puts airport operator back in the spotlight

A storm over the proposed sale of Malaysia Airports Holdings Berhad (MAHB) threatens to thrust the national airport operator into the spotlight once again, even as protest rages over the government's sale of a significant stake to a company tainted by its military dealings with the Israeli regime.

The proposed sale of MAHB to Gateway Development Alliance (GDA), a consortium led by state fund Khazanah Nasional, has sparked concern among industry observers over the company's undervaluation, with critics pointing to potential consequences for the company, which has 39 domestic and international airports under its profile.

The consortium, comprising Employees Provident Fund (EPF), Abu Dhabi Investment Authority and BlackRock-owned Global Infrastructure Partners, has offered to acquire MAHB at RM11 per share for the remaining 1.12 billion MAHB shares.

The privatisation efforts depend on the acceptance of at least 90% of the shares held by the consortium. Permodalan Nasional Berhad (PNB) owns about 5% of MAHB, while pensions fund Kumpulan Wang Persaraan (KWAP) owns about 7%.

Critics say the price offered grossly undervalues MAHB, adding that the company's actual value is much higher than RM11 per share.

"Based on discounted cash flow analysis, the share price should range between RM14 and RM24, depending on the discount rate used," an industry source told MalaysiaNow.

"This does not even take into account the potential revenue from property development and other non-passenger sources," he added.

Documents seen by MalaysiaNow reveal even higher valuations.

Cash flow projections suggest MAHB’s share price could be between RM28 and RM38 in two different scenarios at weighted average cost of capital (WACC) of 8% and 12% respectively.

Lower WACC values usually indicate that a company is able to attract investment at a lower cost, while higher WACC values imply greater risk for investors.

At RM11 per share, the proposed sale price is significantly lower than the two projected valuations, even under the more conservative WACC scenario of 12.

MAHB was thrust into the centre of controversy after Prime Minister Anwar Ibrahim, who is also finance minister, refused to back down from his decision to sell its shares to GIP, a company owned by BlackRock, the US investment giant which is facing allegations of complicity in Israeli war crimes.

Pro-Palestinian groups and opposition leaders have repeatedly warned Anwar against the deal, saying it contradicts his various statements condemning Israeli atrocities in Gaza, which have so far claimed at least 50,000 lives.

Khazanah stated that it would increase its stake in MAHB from 33.2% to 40% and in EPF from 7.9% to 30% upon completion of the transaction. Khazanah further explained that Malaysian investors would own 70% of MAHB, while ADIA and GIP would hold the remaining 30%.

Mazli Noor from the Institute of Corporate Directors Malaysia questioned whether GDA’s valuation adequately reflected MAHB’s future earnings potential.

"What valuation model was used by GDA and did it take into account this forward earning potential?

"In addition, MAHB signed new operating and land lease agreements with the Malaysian government in March 2024, extending its concession to operate 39 airports in the country until February 2069. Was this also taken into account in the valuation?" he asked.

Critics, including former prime minister Dr Mahathir Mohamad, have questioned the need for MAHB's privatisation, pointing to the profits the company has made in recent years since the end of the Covid-19 pandemic.

On Nov 29, the group reported revenue of RM4.26 billion for the first nine months of 2024, up 20.3% from the same period last year.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) rose from RM1.58 billion a year ago to RM2.06 billion.

"Given the excellent financial returns, strong passenger growth and increasing international recognition, I struggle – as a taxpayer – to see what value can be created through its privatisation that isn’t already being achieved or set in place by its shareholders today," Mazli added.

He called on the government to be transparent with the due process in deriving the final value.

Mazli added that MAHB is only an operator of airports and that the valuation should really be based on sustainability of earnings and visibility.

"Therefore, the valuation must be based on potential income and earning, which suggests valuation models such as discounted cash flow (DCF) or EBITDA Multiple, as opposed to other asset-based models such as net tangible asset (NTA) or capital expenditure," he said.

Perikatan Nasional MP Wan Ahmad Fayhsal Wan Ahmad Kamal recently claimed that selling MAHB shares at RM11 per share could result in losses of RM4.9 billion of taxpayers’ money, adding that this represents a significant undervaluation of a critical national asset.

Wan Fayhsal, among opposition leaders who vociferously oppose the entry of BlackRock-owned GIP into MAHB, compared it to the bungled deal involving e-commerce platform FashionValet, which received massive investment from Khazanah despite posting losses for five consecutive years.

"If FashionValet can be scrutinised for relatively small losses, imagine the massive losses we are exposing ourselves to if the government continues to force PNB and KWAP to sell their shares in MAHB at such a low price," he said.