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This article first appeared in The Edge Financial Daily on September 13, 2017

KUALA LUMPUR: IOI Corp Bhd is selling a 70% controlling stake in its specialty oil units to New York-listed Bunge Ltd for US$595 million (RM2.5 billion) plus €297 million (RM1.44 billion) in cash, equivalent to RM3.94 billion.

IOI Corp entered into a sale agreement with Koninklijke Bunge, Bunge’s wholly-owned subsidiary, to dispose of the 70% stake in Loders, which includes IOI Lipid Enzymtec Sdn Bhd and IOI Edible Oils (HK) Ltd.

IOI Corp will continue to be the main supplier of palm oil and palm products to Loders, said IOI chief executive officer Datuk Lee Yeow Chor in a statement. “In this respect, IOI will maintain our strong sustainability commitments as spelled out in IOI Group’s Sustainable Palm Oil Policy,” he added.

Lee highlights IOI will continue to play an important role in Loders given the group’s expertise in palm oil sourcing and its business experience in the fast-growing Asia-Pacific region.

“IOI will have two representatives on Loders’ five-member board of directors and our representatives will also be involved in key management decisions taken by Loders,” said Lee.

The proposed divestment will make a gain of RM2.5 billion based on investment cost. The group’s investment cost amounted to RM1.216 billion, according to its filing with Bursa Malaysia.

The plantation giant intends to distribute RM788.2 million of the proceeds received to shareholders as dividend. This translates into a dividend per share (DPS) of 13 sen.

Meanwhile, half of the proceeds amounted to RM1.97 billion will be utilised to pare down borrowings. Upon the deal’s completion, expected by year end, IOI Corp’s net borrowings will decline to RM2.92 billion from RM5.44 billion as at June 30. Its net gearing ratio will fall to 0.34 times from 0.76 times as at June 30, said IOI Corp in the announcement.

An analyst said any deal that unlocks asset value is usually good. IOI Corp’s proposed divestment is one.

The sale price is valuing IOI Corp’s specialty oil  units at 13 times of the enterprise value to earnings before interest, taxes, depreciation and amortisation (Ebitda), based on the total audited Ebitda of the units for the financial year ended June 30, 2016 (FY16) of approximately €89.7 million.

However, the asset sale is expected to result in one less contributor to the group’s revenue. The total net profit contributed by the specialty oil units for FY16 was approximately RM165.3 million compared with its annual net profit of RM629.7 million.

“Notwithstanding the above, IOI will hold 30% equity interest in Loders post-completion of the proposed disposal. Hence, the company will recognise 30% of the profit contribution from Loders as share of associate results,” said IOI Corp.

“Given the complementary nature of Loders and Bunge’s asset base and product offerings, we expect the integration process to be smooth and that any change to Loders’ operations and employee movements after the close of the transaction to be insignificant,” IOI said in the statement.

Barring any unforeseen circumstances, IOI expects the disposal to be completed in the coming quarter.

IOI Corp shares closed two sen or 0.44% higher at RM4.55, with a market capitalisation of RM28.6 billion.
 

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