Managing director sells shares in Malaysia's Gamuda

The $100 million deal sees Dato Lin cut his stake to 1.7%, but he shows commitment to the company by agreeing to an 18-month lock-up.
Dato Lin, the managing director of Malaysian infrastructure, construction and civil engineering company Gamuda, last night sold about two-thirds of his shareholding in the firm, raising M$322 million ($100 million).

The sale, which will see Lin reduce his stake to about 1.7% from just over 5.2%, came as the share price has eased back slightly from a 52-week high of M$5.75 in early January. Yesterday the stock closed at M$4.98 after falling 3.3%. The share price spiked up from about M$4.94 in the final minutes of trading, however, which was believed to have led to a slightly wider discount than initially planned.

The Credit Suisse-led deal comprised 70 million shares that were offered at a price between M$4.60 and M$4.69, or at a discount of 5.8% to 7.6%. Given that this is the first placement in a Malaysian company since mid-November and only the second block trade of size in Asia since the equity markets took another turn for the worse in mid-January, it is somewhat difficult to put the indicated discount into context. However, the fact that it was a top-level insider selling likely meant the discount had to be somewhat greater than if it had been new stock.

The $132 million follow-on by Singapore-listed CapitaRetail Real Estate Investment Trust on January 25 was completed at a discount of 9.9%, or 7.5% when considering that the new shares were sold without the right to an earlier declared dividend.

The Gamuda offering was priced at the bottom of the price range at a 7.6% discount, but sources say the deal attracted solid demand and was safely covered after about one hour. A good chunk of the deal was allocated to London-based accounts while the rest went to Asia-based investors. Not surprisingly, given that the markets remain jittery, the order book was dominated by long-only investors.

The deal should be quite easy to absorb since it accounts for only about nine days of trading volume. However, Gamuda already has a free-float of about 75%, meaning it is quite easy to buy stock in the market.

While there is likely to have been some concern about the identity of the seller, one source noted that Lin hasnÆt sold any shares in the company since 2002. He is expected to make a statement today outlining the reasons for the sale - believed to be related to private wealth management issues û and confirming his commitment to the company. The latter was also evident by the fact that he agreed to an unusually long lock-up of 18 months following this transaction.

But the price sensitivity in this deal was likely also due to the fact that Gamuda is already trading at rich valuations. According to Bloomberg data, yesterdayÆs closing price translates into a price-to-earnings ratio of 25.7 times for the fiscal year ending in July 2008, while the Kuala Lumpur Composite Index trades at 15.5 times forward earnings. However, the valuation isnÆt totally unwarranted given projections of 70% EPS growth this year and 80% between 2008 and 2009. Of the 21 analysts who cover the stock, 14 have a buy recommendation on it, four have a hold and only three of them advise clients to sell.

Some investors are keen on Gamuda because of its involvement with construction projects in Vietnam, which is seen as an important growth-driver for the future. In addition, Malaysia is one of the best performing stockmarkets in the region so far this year. Although it is down 2.13%, only Jakarta, Shenzhen and Karachi have fared better. Japan, Korea, Hong Kong, Singapore, India, Australia and the Philippines have all lost more than 10% of their market value since the beginning of this year.
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