This article first appeared in The Edge Financial Daily, on November 6, 2015.

KUALA LUMPUR: Kulim (Malaysia) Bhd’s largest shareholder Johor Corp (JCorp) has proposed to buy out minority shareholders via a selective capital reduction and repayment (SCR) exercise at RM4.10 per share, amounting to RM2.22 billion.

Kulim said it had yesterday received a letter from JCorp, together with parties acting in concert, requesting the company to undertake the proposed exercise.

JCorp and parties acting in concert in the corporate exercise own a combined 61.87% stake in Kulim.

The offer will remain open for the Kulim board of directors’ acceptance until 5pm on Nov 20, Kulim said in a filing with Bursa Malaysia yesterday.

Kulim said JCorp does not intend to maintain its listing status.

As at Oct 28, Kulim’s issued share capital stood at RM305.17 million, comprising 1.22 billion shares. The proposed SCR exercise would reduce the issued share capital by cancelling 540.85 million shares.

Given that the number of Kulim shares to be cancelled under the proposed SCR exercise is higher than the existing issued share capital, JCorp has also proposed a bonus issue to be undertaken by Kulim to increase the latter’s issued share capital to a level which is sufficient for the capital reduction.

JCorp is also extending the offer to outstanding warrants (2011/2016) holders and the options under the company’s employees’ share option scheme which had been exercised prior to the entitlement date.

Trading in Kulim shares was suspended yesterday pending the announcement. The SCR exercise at RM4.10 represents an 80 sen or 24.24% premium over Kulim’s last quoted price before suspension of RM3.30 on Wednesday.

Year to date, Kulim’s (fundamental: 2.6; valuation: 3) share price has risen 24.72%, outperforming the FBM KLCI’s 4.13% decline.

In its offer letter to Kulim, JCorp said the move comes nine months after Kulim disposed of its 48.97% equity interest in New Britain Palm Oil Ltd (NBPOL) for RM2.8 billion, which was the major contributor to Kulim and its subsidiaries.

“Following the disposal, the major assets contributing to the revenue and profitability of Kulim comprise Malaysia oil palm plantations and its 50.8% investment in EA Technique (M) Bhd,” said JCorp.

JCorp also noted that Kulim’s plantation hectarage has since become smaller and earnings contribution from this business segment has declined.

Despite noting Kulim’s intention to venture into the oil exploration business in Indonesia, JCorp said the new business may take a longer time to be a significant contributor to Kulim.

“Given the challenging market environment and lack of immediate rerating catalyst of Kulim shares, the proposed SCR represents a good opportunity for the minority shareholders to realise cash for their investment at an attractive premium above the prevailing market prices,” it added.

JCorp said it plans to fund the exercise by way of an advance from the non-entitled shareholders and/or financing facilities to be obtained by Kulim from financial institution(s).

It is required that the offer be approved by at least 50% of Kulim’s shareholders and 75% in value of votes attached to Kulim’s shares held by entitled shareholders that cast their vote.

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