The exercise is the first step towards more partnerships ahead, including for potential joint overseas acquisitions, 3A, a nondescript Main Market company said in a statement to Bursa Malaysia yesterday.

Wilmar, a Singapore-listed plantation and palm oil processor, is set to pay RM46.2 million or 75 sen per share for a 16.67% stake in 3A’s enlarged share capital via a proposed private placement of up to 61.6 million shares, or 20% of its existing share base, 3A said.

“Wilmar has given a letter stating that it is interested to subscribe for 61.6 million placement shares at 75 sen per share… The proposed private placement is to enable 3A Resources and Wilmar to collectively venture into any future overseas investment,” 3A said in the statement.

The Malaysian company produces, among others, caramel colour, glucose syrup and soya protein sauce that are used in the processing of food. Its maltodextrin plant is the only one in the country and plans are underway to set up an additional plant by the end of next year, according to a note dated Aug 14 by Asia Analytica Sdn Bhd.

Maltodextrin is a white powder with little sweetness that is widely used as fillers or bulking agent.

After the completion of the placement, Wilmar, which recently delayed the listing of its Hong Kong unit, will end up as the second-largest shareholder in 3A.

The 75-sen indicative issue price represents a 12.63% discount to 3A’s five-day weighted average market price up to Oct 2 of 85.84 sen. The indicative issue price is at a 21.9% discount to 3A’s 96 sen closing price yesterday. The stock, which rose to as high as 97.5 sen intra-day yesterday, ended the day up 13.5 sen, or 16.36%, with 12.7 million shares done.

Standard & Poor’s has a hold recommendation on 3A with a 60 sen price target as at Aug 14, according to Bloomberg data.

The RM46.2 million proceeds from the private placement will be used as working capital as well as for “new overseas investment” after deducting some RM400,000 in estimated expenses, 3A said, without elaborating on the possible acquisitions abroad.

The indicative proceeds are set to boost 3A’s net asset per share to 34 sen from 26 sen as at Dec 31, 2009. The enlarged share base of 369.6 million shares (from 308 million shares currently) will also see its gearing fall to 0.36 times from 0.57 times.

The proposed private placement, which needs the approval of shareholders of the Malaysian company, is expected to be completed in the fourth quarter of 2009 and is not expected to have a material effect on earnings for the current year ending Dec 31, 2009, 3A said.

While 3A’s earnings per share (EPS) may see a corresponding reduction with the 20% larger share base, the company expects proceeds from the private placement to be used for overseas investments which are expected to contribute positively to future earnings.

Fang Chew Ham and family, currently 3A’s single largest shareholder, will see their collective shareholding diluted to 37.2% from 44.6% following the private placement. Lembaga Tabung Haji will become 3A’s third-largest shareholder with a 4.6% stake, down from 5.5% as at Sept 30, 2009.

3A has appointed OSK Investment Bank as adviser for the proposed private placement, and applications for the exercise will be submitted to the authorities within a month.

Wilmar, whose shareholders include the Kuok Group, fell six cents, or 0.98%, to S$6.05 with 6.8 million shares done yesterday. It had not made an announcement to the Singapore exchange at press time.

This article appeared in The Edge Financial Daily, October 6, 2009.