KUALA LUMPUR (April 22): Kuchai Development Bhd (KDB) has proposed to distribute 17.58 million shares or a 26.51% equity interest in Sungei Bagan Rubber Company (Malaya) Bhd (Sg Bagan) to KDB shareholders by way of dividend-in-specie.

Based on the total issued share capital of KDB of RM63.67 million comprising 123.75 million shares as at April 5, the distributable shares are expected to be distributed on the basis of 0.142 Sg Bagan shares for every one KDB share held.

In a bourse filing on Friday (April 22), KDB said the proposed dividend-in-specie will enable it to reward its shareholders by allowing them to invest directly in Sg Bagan at no cost.

"This will enable the shareholders to make separate investment decisions on their shareholdings in KDB and Sg Bagan and monetise their investments in either company, should they wish to do so. The shareholders will also be able to benefit directly from the future financial performance of Sg Bagan and any distributions to be declared by Sg Bagan," it added.

KDB said the proposed dividend-in-specie will also enable the company to completely eliminate the legacy cross shareholdings which long existed between KDB, its major shareholder Kluang Rubber Company (Malaya) Bhd (KRCB) and Sg Bagan.

KRCB currently holds a 32.21% equity interest in Sg Bagan. KRCB’s shareholding in Sg Bagan is expected to increase to 43.4% upon receipt of its entitlement to the distributable shares under the proposed dividend-in-specie, triggering a mandatory general offer (MGO).

"However, KRCB does not intend to undertake the MGO and it will be submitting an application to the Securities Commission Malaysia for an exemption from the obligation to undertake the MGO," said KDB.

For illustrative purposes, a shareholder holding 1,000 KDB shares will be entitled to receive 142 Sg Bagan shares from the proposed dividend-in-specie. Based on the market value of the distributable shares as at April 5, which was computed based on the market price of Sg Bagan shares of RM3.32 on that day, the amount to be utilised pursuant to the proposed dividend-in-specie is estimated at RM58.38 million.

KDB said the proposed dividend-in-specie will be declared out of KDB’s retained earnings, which stood at RM101.82 million as at June 30, 2021. The retained earnings will be reduced to RM76.32 million after the proposed dividend-in-specie.

Upon completion of the proposed dividend-in-specie, KDB will cease to be a shareholder of Sg Bagan, leaving only KRCB as the shareholder of both KDB (42.21%) and Sg Bagan (43.4%).

The proposed dividend-in-specie is subject to KDB shareholders' approval at an extraordinary general meeting to be convened. RHB Investment Bank Bhd has been appointed as the principal adviser for the exercise.

Barring any unforeseen circumstances, the proposed dividend-in-specie is expected to be completed by the third quarter of 2022.

KDB shares closed down one sen or 0.58% at RM1.71 on Friday, bringing it a market capitalisation of RM208.01 million. KRCB and Sg Bagan shares were untraded but they last closed at RM4.03 and RM3.50 respectively, valuing the companies at RM255.5 million and RM232.16 million.