IJM Corporation will sell its entire 56.2% stake in IJM Plantations to Kuala Lumpur Kepong (KLK) for RM1.53 billion in cash. The company announced the agreement on 11 June 2021.
KLK’s approach came two days earlier. IJM said it had received a letter offering RM3.10 a share, a 26% premium to IJM Plantations’ last traded price of RM2.46. The price values the plantation company at RM2.73 billion. Analysts called the offer reasonable, and shares in IJM Plantations were already up 35% for the year, with a market capitalisation of RM2.16 billion.
The deal needs approval from IJM’s shareholders and lenders at an extraordinary general meeting, with the date not yet set. Once it closes, IJM Plantations stops being an IJM subsidiary. IJM keeps its right to the 10 sen per share dividend payable in July.
Why IJM is selling
IJM said the plantation business is mature and it has no plans to expand it further. CEO and Managing Director Liew Hau Seng said strong crude palm oil prices and the good showing of plantation companies had opened “an opportune window” to sell at an acceptable price.
The numbers favour IJM’s books. The sale is expected to produce a gain of RM700 million, and the proceeds would cut net gearing from 44.0% to 21.6%. The RM1.53 billion equals 21% of IJM’s RM7.14 billion market capitalisation. IJM said that money could go to new opportunities, working capital, a special dividend or share buybacks. It also wants to focus on construction, property development, infrastructure concessions and building materials.
MIDF Research analyst Khoo Zhen Ye said the sale of a loss-making division came at a good moment, with a palm oil upcycle lifting valuations. IJM Plantations lost money in the two financial years before the most recent one. For the year ended 31 March 2021 it posted its highest revenue and profit since it began in 1985.
What KLK gets
KLK has 223,964 hectares planted across Malaysia, Indonesia and Liberia. IJM Plantations adds 60,966 hectares, about 27% more. Of those, 25,014 hectares are in Sabah, with trees averaging 14 years old, and 36,263 hectares are in Indonesia, where the average is 8 years.
KLK said it has the financial resources to complete the purchase. Once the agreement is signed it must make a mandatory general offer for the IJM Plantations shares it does not already hold. IJM noted that the top 30 shareholders own over 91% of the company, which keeps the stock tightly held.
Sources
- IJM to divest entire stake in IJM Plantations for RM1.53 billion – IJM Corporation Berhad
- Malaysia's KLK offers RM1.53b for majority stake in IJM Plantations
Sources
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