Cheap Sale of 50% SACOFA’s share to CMS Berhad,3 Question to ask The State Government

Since the publication of my statement about the “Cheap Sale of 50% SACOFA’s share to CMS Berhad”, the State Government has no defence. 

Instead, on 23-12-2016, CMSB came out to attempt to justify its acquisition of the said 50% SACOFA shares, claiming that the acquisition was done in transparent manner in compliance with the rules and regulations set out by the KLSE Bursa.

CMSB’s statement about the compliance with the Bursa’s regulations was in fact a statement speaking from its business perspective, BUT NOT from the perspective of the public interest of Sarawak.

In 2015, the Sarawak State Government sold 50% of SACOFA’s share to CMS at the price of RM186.79 million.  This is a SUPER Cheap Sale price and only the company with the close relationship with the Governor’s family benefits from such SUPER CHEAP SALE.

There are 3 reasons why this is a SUPER CHEAP SALE:

1.         No premium for the Controlling stake in a monopoly company

In all company acquisitions, there has to be a premium price for a controlling stake in the company.  SACOFA is the company with the monopolistic power to control the tele-communication infrastructure throughout Sarawak, yet there was no premium price for the controlling stake in such a profit-guaranteed company.

The net asset of SACOFA Group as at 31-12-2014 was RM403 million (50% = 201.5 million).  The deal was completed in 2015, yet the State Government used the net asset value of RM344 million to base its sale price of RM186.79 million.

2.         Super low Price/Earning ratio

The after-tax profit of SACOFA group for the years 2012 to 2015 are as follows:

After-tax Profit
 RM 62,818,577
RM 51,763.604
RM 59,479,489
RM 89,760,847

The State Government, through Wong Soon Koh, claimed that the State Government used the 2013 profit figure to calculate its P/E ratio of 7.23 for the sale of SACOFA shares. 

It is noteworthy that 2013 is the year of exceptionally low profit, a drop of approximately RM10 million compared to the profit for year 2012 and 2014.  If you were to take the SACOFA’s profit for the year 2012 for your calculation, the P/E ratio would be 5.95.

However, even with this exceptionally low profit year figure, the P/E ratio of 7.23 is still very low compared to the P/E ratio of other telco companies, eg. (23.5), Maxis (22.6), Telekom (28.3), Axiata (29.5).

With such low P/E ratio, CMS’s investment in SACOFA is even more profitable than banking sectors in Malaysia.

If one were to look at the acquisition price from the perspective of Rate of Return (ROR) on investment, for the year 2014 its ROR was 15.9%, while its ROR for the year 2015 was 24.0%.

 With such ROR, CMS will be able to recover fully, all the money it invested in purchasing 50% stake in SACOFA within 6 years and own 50% of SACOFA.  This is an exceptionally high ROR, which means, an exceptionally low price for the said acquisition.

3.         CMS will be entitled to 50% of Government Allocation to build Telco Towers

With CMS becoming 50% shareholder of SACOFA, we are now hearing increasing calls from the elected ADUNs in Dewan UndanganNegeri Sarawak asking the Government to approve allocation of funds to build Telco towers in their areas.

As SACOFA is the sole authorised company to build telco towers, such government allocation, if approved due to political pressure to develop the rural area, will be channelled through SACOFA.  As 50% shareholder of SACOFA, CMS will be the 50% beneficiary for all such government allocations in future.

The acquisition of 50% share in SACOFA by CMS is definitely a superb deal for CMS.  Sad to say, the gains by CMS is at the loss and expense to Sarawakians in general.  That is why until today, the State Government did not dare to answer directly to the following questions:

1.       Why did the State Government privatise a regulatory body for telco infrastructure and turn it into a regulatory cum business entity?  Under such position of conflicting interest, how is the government going to ensure that the regulatory role of SACOFA will not be compromised for its business interest?

2.       Why did the State Government sell off 50% share in SACOFA at such a low price?

3.       Was the political background and connection of CMS a factor in the privatisation exercise?  There is no shortage of qualified economists in the Sarawak Ministry of Finance, why then is the Sarawak Government cheap-selling SACOFA’s 50% share at such low price.

Based on my personal estimate, in the whole privatisation exercise, the Sarawak Government has been short-changed by at least RM300 million.

Chong Chieng Jen
MP for Bandar Kuching/ADUN for Kota Sentosa
DAP Sarawak Chairman