Analysts uncertain over Barito-CASH transaction

Analysts uncertain over Barito-CASH transaction

SINGAPORE (Reuter): Analysts are uncertain about what lies behind this week's developments in the reverse takeover of Malaysia's Construction and Supplies House Ltd (CASH) by Indonesian timber tycoon Prajogo Pangestu.

CASH, listed on the Kuala Lumpur Stock Exchange (KLSE) and Singapore's over-the-counter market, in February announced an alliance with Prajogo's Barito Pacific (Barito) group. The alliance will be signed on Saturday.

Malaysia's Business Times this week said CASH is also buying a stake, believed to be about 30 percent, in Barito Pacific.

A 30 percent stake would swell to 2.56 billion ringgit from 700 million ringgit the value of assets to be injected into CASH in return for shares, a possible loan and cash.

While analysts say the deal is positive for CASH in that it transforms a "mere $2 (ringgit) company" into an asset-rich concern, they are uncertain of the Indonesian group's motives and the long-term implications for CASH.

Yap Huey Chiang, timber industry analyst at Baring Securities in Kuala Lumpur, said CASH would be better off buying timber processing companies or companies with timber concessions outside Indonesia.

Yap said buying into Barito Pacific, whose main asset is its 2.89 million hectares of timber concessions in Indonesia, makes little sense as CASH would not be able to sell the logs outside Indonesia.

Another sector analyst, from a Singapore brokerage, said Barito was probably attracted by the fact that Malaysian stocks tended to command higher price-earnings ratios than Indonesia's.

"By injecting their assets into a Malaysian listed company, they (the Indonesian group) would get better market value," the analyst said.

Analysts also wonder why there has been such a high level of support from both Malaysian and Indonesian governments for the deal. One reading is that Malaysia and Indonesia want to stabilize timber prices by controlling the supply.

Despite their uncertainty, both analysts and dealers said CASH's stock is likely to surge when trading resumes on June 20.

The stock was suspended in March at S$4.68 in Singapore and $7.95 ringgit on the KLSE. "Hopefully after the signing, things will be clearer. But I think only one to two years down the road can we be sure whether to recommend CASH as a long-term buy for institutions," said the Singapore brokerage analyst.