KUALA LUMPUR (June 23): Kuala Lumpur Kepong Bhd's (KLK) proposed US$110 million (about RM460 million) acquisition of a 90% stake each in two Indonesian oil palm companies from TSH Resources Bhd subsidiaries has been terminated as certain conditions under the two conditional share sale and purchase agreements (CSSPAs) could not be fulfilled.
KLK said in a Bursa Malaysia filing yesterday (June 22) that KLK was referring to its Aug 26, 2020 announcement that KLK's Singapore-incorporated wholly-owned subsidiary Taiko Plantations Pte Ltd (TPPL) had entered into a CSSPA with TSH Global Plantation Pte Ltd to acquire a 90% stake in PT Farinda Bersaudara for US$76.7 million and another CSSPA with TSH Oversea Pte Ltd to buy a 90% stake in PT Tough Swakarsa Sejahtera for US$33.4 million.
"Certain conditions precedent under the CSSPAs had not been satisfied or waived before the expiry of the conditions precedent fulfilment period, and as such, CSSPA 1 (with TSH Global Plantation) and CSSPA 2 (with TSH Oversea) have been terminated.
"Following the termination of the CSSPAs, the parties' respective rights and obligations pursuant to the CSSPAs will lapse and cease to have effect, and neither TPPL nor the sellers will have any claim against each other.
"The termination of the proposed acquisition is not expected to have any material impact on the earnings per share and the net assets per share of the company (KLK) for the financial year ending Sept 30, 2021," KLK said.
According to KLK's Aug 26, 2020 announcement, PT Farinda Bersaudara and PT Tough Swakarsa Sejahtera operated oil palm plantations within Indonesia's East Kalimantan Province’s West Kutai Regency.
The PT Tough Swakarsa Sejahtera oil palm plantation land is adjacent to the PT Farinda Bersaudara plantation tract, KLK said.
Today, Hong Leong Investment Bank Bhd analyst Chye Wen Fei wrote in a note that while TSH Resources will not be able to reduce its borrowings in a substantial manner following the termination of the proposed deal with KLK, the termination will, however, allow TSH Resources to continue to capture the high earnings contributions from its subsidiaries TSH Global Plantation and TSH Oversea amid current high prices of crude palm oil (CPO).
"Impact on KLK is minimal given its large planted area (particularly following its recent acquisition of IJM Plantations)," Chye said.
The analyst said Hong Leong maintained its "buy" call on KLK shares with an unchanged target price (TP) of RM26.60.
"Upgrade TSH (Resources) to 'buy' (from 'hold' earlier) with unchanged TP of RM1.20, following recent share price correction," the analyst said.
RHB Investment Bank Bhd analysts Hoe Lee Leng and Sean Chew wrote in a note today saying that RHB is mildly positive about the termination's impact on TSH Resources as the company will be able to capitalise on the CPO price increase, as well as the short-term recovery in oil palm production growth.
Hoe and Chew said the retention of TSH Global Plantation and TSH Oversea will allow TSH Resources to fully capitalise on the current elevated CPO prices, and reduce debts with TSH Resources' improved cash flow.
"Positive on termination in the short term," they said.
According to them, RHB has upgraded its TSH Resources share recommendation to "buy" from "neutral" but with a lower TP of RM1.20 compared with RM1.30 previously.
On Bursa today, TSH Resources shares were traded unchanged at RM1.06 at 2.47pm for a market value of about RM1.46 billion based on the company's 1.38 billion issued shares.
At 2.48pm, KLK's share price was down two sen or 0.1% to RM20.82 for a market capitalisation of around RM22.49 billion.