KUALA LUMPUR: Tadmax Resources Bhd’s sale of a massive tract to 1Malaysia Development Bhd (1MDB) comes as a relief during a dry spell.

The proceeds of RM317.3 million from the sale of the 310-acre (125.45ha) piece of land adjacent to Port Klang Free Trade Zone (PKFZ) on Pulau Indah, Selangor will replenish Tadmax’s coffers, which is running dry.

However, IMDB’s acquisition has since raised some eyebrows. It is learnt that the land, which is near the controversial PKFZ project, will most likely be used to undertake industrial developments.

Tadmax was formerly known as Wijaya Baru Global Bhd. Its single largest shareholder Anuar Adam took over a 30.15% equity stake in 2011 from Datuk Seri Tiong King Sing, who was chief executive officer (CEO) of Kuala Dimensi Sdn Bhd — the company that sold land to the federal government for the PKFZ project.

Tiong still holds a 5.53% stake in Tadmax. Meanwhile, the group’s chairman Datuk Seri Abdul Azim Zabidi was the treasurer for Umno from 2000 to 2002. He was also a director of Kuala Dimensi.

Tadmax previously owned a 45% stake in Wijaya Baru Sdn Bhd, which wholly owns Kuala Dimensi. Tadmax has since disposed of the 45% stake as part of the management’s plans to rid the group’s ties of the PKFZ scandal, its CEO Datuk Faizal Abdullah told The Edge Financial Daily.

“Since Datuk Seri Tiong sold out his majority stake, we have been working to cut ties with the group’s legacy issues. That is why we changed the (company’s) name to Tadmax and disposed of Kuala Dimensi (through disposal of Wijaya Baru),” said Faizal, who is former CEO of Kuala Dimensi.

“Tiong may have a 5% stake in the group, but that is because of the group’s irredeemable convertible unsecured loan stocks. We [management] have not had any communication with Tiong in the past one-and-a-half years,” he added.

There are a few more legacy issues to settle in the management, which will be done at Tadmax’s upcoming annual general meeting, he added.

Meanwhile, some RM317 million cash would come in handy for Tadmax to pare down its borrowings.

“We will use the proceeds to pay off about RM220 million worth of borrowings and we will make huge savings on interest payments. After the debt repayments, we should have about RM50 million net from the acquisition,” said Faizal.

“The board would consider rewarding shareholders by distributing some of the cash proceeds, but the first priority will be to acquire a brownfield oil palm plantation asset that is already generating cash flow,” added Faizal.

The RM50 million net cash from the divestment is equivalent to about 13.7 sen per share, against Tadmax’s share price of 60.5 sen last Friday.

Faizal is confident that the group will be able to return to the black by the end of the year, with the influx of cash from the disposal and the lighter interest burden.

Tadmax’s mainstay has been timber logging in Sabah, Sarawak and Indonesia. However, Faizal said that the group plans to change its focus to plantations as timber business is challenging.

The group has been loss-making over the past five years, and its cash reserves have dwindled to only RM124,000 against borrowings of RM220.5 million as at Sept 30, 2013. Paying off the borrowings will save it about RM3 million in interest payments each quarter, compared with losses of about RM8 million the group has been posting quarterly.

Tadmax incurred a net loss of RM8.52 million on revenue of RM3.55 million for the quarter ended Sept 30, 2013.

Notably, Tadmax also has about RM42 million in debts owed to director, namely Faizal. The group will issue Faizal new shares to offset the loan.

“I have already offset some of the money I have forwarded to the group in exchange for shares. This way, if the group performs well I will be rewarded. Keep in mind that the group is not allowed to pay interest on loans from directors,” said Faizal.

The Pulau Indah land is the last piece of landbank Tadmax has in Malaysia.

The group also has some 80,000ha of land in Papua, Indonesia with a 35-year land use right.

“The [above land] is huge and we are actively looking for partners to help us extract value from it,” said Faizal.

However, Tadmax’s plan to log the land and replant it with palm oil has been known for a number of years; many are awaiting to see the company unlock its large timber concession in Indonesia.

This article first appeared in The Edge Financial Daily, on February 24, 2014.