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Malaysian state investor: China investment meets objectives
Some media reports criticised the deal, alluding to the fact that Khazanah had overpaid for the asset – buying 10 percent stake in the Chinese university from Singapore’s Raffles Education Corp, at a price/earnings multiple of 58 times and eight times book value.
There were also claims that Khazanah had little or no experience in making investments in the education sector and that the money being spent could have been better utilised domestically.
“The investment (in OUC) more than satisfies stringent financial criteria that include discounted cash flow (DCF) valuations and internal rate of return estimates, forward earnings multiples that are comparable to industry averages, and compares favourably with inherent growth rates expected in the education sector in China,” Khazanah said in the statement, without providing exact figures.
Khazanah said it had looked beyond the historical performance and valuation multiples of OUC for 2009 that were quoted in some media reports.
“Being in the high-growth education sector in a high-growth economy, Khazanah also looked at forward-looking financial projections and a DCF model with an appropriate discount rate that properly reflects the risks involved in a highgrowth investment opportunity.
“In this regard, it is important to note that the acquisition is being transacted as OUC completes a substantial part of its financial year ending June 2010,” the statement said.
It added that the investment had a clear exit strategy through a planned listing in the medium term and even if that did not occur, Khazanah was protected by “an inherent downside protection that will effectively protect Khazanah’s capital investment and adequately cover its cost of funds over the period.”
It is understood that the protection is in the form of a right to sell back the OUC shares to its vendor.
Khazanah also reiterated that education was one of its key focus areas. It has a direct stake in the International Medical University and indirect stakes in Marlborough College Malaysia, Newcastle University Medicine Malaysia (via Iskandar Investment Bhd) Uniten (via Tenaga Nasional), Multimedia University (Telekom Malaysia) and Pantai Education (Pantai Holdings Bhd).
Khazanah said the investment in OUC had dual objectives – tapping into the expertise of Raffles Education and capitalising on the upside of China’s growing and under-served education sector which sees 26 million new students every year and is worth about $39 billion annually.
Khazanah said it was exploring with Raffles Education the possibility of replicating the latter’s “University City” business model in Malaysia and other countries in the region.