This article first appeared in The Edge Malaysia Weekly on April 11, 2022 - April 17, 2022

PERMODALAN Nasional Bhd (PNB) is said to be looking to dispose of a portion of its shares in IHH Healthcare Bhd and Petronas Chemicals Group Bhd (PetChem) and could raise RM1.6 billion in the process, according to sources.

However, it is not clear what PNB plans to do with the funds raised from the sale of its shares in IHH and PetChem. Nevertheless, if its goal is to raise cash, the shares will be easy to dispose of.

“PNB is paring its stakes in the two companies but who it is looking to place out [the shares] to is not known. The sale could take place anytime soon,” says a source.

When asked to confirm that it plans to sell some of its shares in IHH and PetChem, PNB responded that as a matter of policy, it does not comment on market rumours or speculation.

PNB directly held 52.35 million shares in IHH as at March 31, 2021, representing 0.6% of the healthcare group’s issued shares. However, via its various funds, it held another 429.06 million shares, or 4.56%, in IHH. In total, PNB’s 5.16% stake in the healthcare group was valued at RM3.11 billion at last Friday’s closing price of RM6.45.

Meanwhile, the government-linked investment company had a direct stake of 46.63 million shares in PetChem as at Feb 28, representing 0.58% of the issued shares of the petrochemical and refinery group majority-owned by Petroliam Nasional Bhd (Petronas).

At the last traded price of RM10.22 per share on April 8, PNB’s stake in PetChem is worth RM476.56 million. Like in IHH, several investment funds managed by PNB also hold shares in PetChem — a total of 470.67 million shares worth RM4.81 billion.

As such, PNB has sizeable stakes in IHH and PetChem.

“That’s the attractiveness of the stakes [held by PNB] in IHH and PetChem. Because they are not too large, many investors can absorb such an amount, rather than if PNB were to sell its shareholding in companies where it is the largest shareholder, such as Sime Darby companies or Maybank. These shares are easier to dispose of,” says a stock market observer.

The two companies are among the better performing ones that PNB and its funds have invested in. At the other end of the spectrum, the government-linked investment company is the largest shareholder of Sapura Energy Bhd, which has been struggling financially.

There have been calls by some parties for PNB to step in and bail out Sapura Energy on the basis that it must protect its investment in the group and the thousands of vendors in the oil and gas industry that may be affected if the ailing oil and gas group goes bankrupt.

PNB and its funds have 40% equity interest in Sapura Energy after forking out RM2.68 billion and taking up unsubscribed rights shares in January 2019. The funds also subscribed in full for Sapura Energy’s Islamic redeemable convertible preference shares (RCPS-i), which were part of a RM4 billion cash call — RM3 billion from a five-for-three renounceable rights issue at 30 sen and RM1 billion via a two-for-five renounceable rights issue of new RCPS-i at 41 sen each.

Considering that Sapura Energy’s stock is trading at the four sen band, PNB is sitting on a huge paper loss, with its 40% stake in the oil and gas company worth only RM256 million. PNB, via its various funds, also has more than 98% of Sapura Energy’s RCPS-i, which is trading at the three sen level.

While it is not clear how much IHH and PetChem contribute to the distributable income of PNB and its funds every year, it is worth noting that over the last 52 weeks, IHH’s shares have strengthened by more than 20%, while PetChem’s stock has rallied by more than 38%.

The profitability of these companies has also been improving. For the quarter ended Dec 31, 2021, PetChem’s net profit gained 342% year on year to RM2.06 billion. The petrochemical group declared a dividend payout of 56 sen per share for the financial year ended Dec 31, 2021, which was more than quadruple the 12 sen per share declared in the preceding financial year.

In the case of IHH, its net profit for the financial year ended Dec 31, 2021 (FY2021) surged more than 544% to RM1.86 billion.

Analysts covering PetChem have a consensus target price of RM10.96 on the stock, which is an upside potential of 7.21% from its closing price of RM10.22 last Friday. Of the 21 analysts who cover the counter, 18 have either “buy” or “strong buy” calls, and only two with a “reduce” recommendation.

Meanwhile, analysts who cover IHH have a consensus target price of RM7.387 per share for a potential gain of 14.52%. Of the 20 analysts who cover the stock, 14 have either “buy” or “strong buy” calls, and only one “reduce”.

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