KUALA LUMPUR (June 8): British American Tobacco (M) Bhd (BAT) is disposing of its factories and two parcels of leasehold land, measuring 5.3 hectares at Virginia Park, Petaling Jaya, Selangor, for RM218 million cash.

In a bourse filing today, BAT said its wholly-owned subsidiary Tobacco Importers and Manufacturers Sdn Bhd (TIM) has entered into a conditional sale and purchase agreement (SPA) with LGB Properties (M) Sdn Bhd for the asset disposal, the winner of a public tender conducted for the disposal.

The disposal came after BAT announced it would be shutting down its manufacturing operations in Petaling Jaya by stages, as it restructures its business operations in Malaysia due to an increasingly challenging business environment.

BAT had said then that the closure of its manufacturing ops would affect about 230 employees. The restructuring is targeted to be completed by the second half of 2017.

Based on the purchase price, BAT is expecting a net gain of about RM148.78 million or 52.1 sen per share, after taking into consideration the audited net book value of the property, the estimated expenses to be incurred for the proposed disposal, and the real property gains tax.

The price tag, however, is below the market value of RM262.5 million for the assets, as appraised by by Messrs. DTZ Nawawi Tie Leung Property Consultants Sdn Bhd on April 22, 2016. BAT said the market value of the lands is RM216.80 million, whereas the market value of the buildings is RM45.70 million.

Still, the proceed is poised to boost the cigarette producer's cash and bank balances up to RM256.47 million, from its current cash pile of RM38.47 million, as at March 31, 2016.

The property was previously acquired by TIM on Nov 25, 1996 at RM62.39 million from BAT, which was then known as Rothmans of Pall Mall (M) Bhd.

BAT said the use of the sale proceeds will be reviewed and determined by end-2016. The sum may be distributed as dividends, used to undertake capital reduction and/or repay current revolving credit facilities.

The disposal is subject to BAT’s shareholders’ approval within three months from the date of the SPA.

The group expects to complete the disposal by the end of the year.

“The proposed disposal is in line with the company’s intention to cease TIM’s factory operations further to its objective to restructure its business operations in Malaysia, by sourcing tobacco products for the domestic market from other BAT Group factories regionally,” the filing read.

Aside from the SPA, TIM and LGB Properties also executed a tenancy agreement for the former to rent the property for 12 months, with a monthly rental of RM1.09 million.

BAT said TIM may request to extend the tenancy for two further terms of six months each, at the same monthly rental.