KUALA LUMPUR (Feb 21): Hap Seng Plantations Holdings Bhd is acquiring a 55% stake in smaller rival Kretam Holdings Bhd for RM1.18 billion to boost its plantation land bank.

In a filing with the stock exchange, Hap Seng said it is acquiring the stake, comprising 1.28 billion shares, at 92 sen a share in cash.

Kretam’s share price closed at 84 sen yesterday — its highest level since 1997. Trading in the stock was suspended today at the company’s request pending the acquisition announcement.

Hap Seng said the acquisition of the 55% stake will trigger a mandatory general offer for the remaining shares in Kretam, but it intends to maintain the listing status of Kretam.

The group said it is buying 33.5% of the stake from Kretam's largest shareholder, Datuk Lim Nyuk Sang @ Freddie Lim, for RM716.99 million, and another 21.5%  from Santraprise Sdn Bhd for RM460.79 million.

Upon completion of the acquisition, Hap Seng’s total plantation land bank and planted area is expected to increase by 23,865ha or 59.2%, and 19,623ha or 54.3%, respectively.

“In line with its objective to increase its plantation land bank, the proposed acquisition represents an opportunity for Hap Seng and its subsidiaries to pursue its long-term strategy,” said the group.

It added that it is acquiring Kretam as the latter’s estates — in Sandakan, Lahad Datu, and Tawau — are strategically located and close to the group’s existing estates, thereby allowing for greater economies of scale.

The exercise is also expected to improve the age profile of Hap Seng’s oil palm estates, which in turn is expected to enhance revenue stream for the group in the medium to long term.

With the capacity of the Kretam’s existing refinery of about 1,500 tonnes a day, the acquisition will also enable Hap Seng to venture downstream into the production and sales of edible oils, extending its value chain and operational efficiency, it added.

Shares in Kretam have been heavily traded since the start of the year, and has risen 57% since closing at 53.5 sen on Jan 2.

Kretam currently has a market capitalisation of RM1.96 billion, and at the current level, the stock is trading at about 2.08 times its book value.

Hap Seng Plantations last closed at RM2.56, giving it a market capitalisation of RM2.05 billion. The counter has been trading between RM2.45 and RM2.73 in the last year.