This article first appeared in The Edge Malaysia Weekly on September 18, 2023 - September 24, 2023

THE Boustead Plantations Bhd-Kuala Lumpur Kepong Bhd deal has come right down to the wire with the Lembaga Tabung Angkatan Tentera (LTAT) board seeking more time to arrive at a decision on the transaction.

A decision had been expected on Sept 9 when an extraordinary general meeting (EGM) was supposed to be held by Boustead Holdings Bhd (BHB) to approve the sale of 33% and one share in Boustead Plantations (BPlant) to KLK. 

However, the meeting was not held and is understood to have been postponed to sometime this week.

According to the timeline of the deal, on the Monday (Sept 11) following the EGM, the block of shares would have crossed to KLK, and the joint offerors would then launch the mandatory general offer (MGO) for the rest of the shares in BPlant.

However, at the last minute, investment bankers advising the deal were told that the EGM would be postponed due to certain legal issues and that the LTAT board needed more time to consider.

So instead of launching an MGO last Monday, KLK said in a filing with Bursa Malaysia that the joint offerors, comprising itself, LTAT and BHB, had agreed to the cut-off date of Sept 22, which is this Friday, with the door left open for further extensions.

It is understood that one issue involved the minorities who had held on to their BHB shares in the privatisation by LTAT that was completed in June this year.

“This is mainly administrative,” says a source familiar with the matter, “The bigger issue is the political overhang that has emerged.”

He was referring to certain parties who had voiced their concerns that the deal ­effectively leads to a Chinese-owned group taking over bumiputera-owned assets.

In parliament last week, two opposition members of parliament (MPs) questioned the deal, as they contended that the deal weakened bumiputera equity participation in the economy.

To recap, on Aug 24, KLK, BHB and LTAT signed a strategic collaboration agreement (SCA), which entails the sale of 33% and one share of BPlant to KLK for a cash consideration of RM1.15 billion or RM1.55 per BPlant share. 

Following that, BHB, LTAT and KLK, as joint offerors, will undertake an MGO to take over the remaining BPlant shares they do not own at RM1.55 apiece.

The SCA also calls for improving the operational efficiencies and crude palm oil yields of BPlant over the long term.

The sale of the 33% plus one share block is conditional upon the approval of BHB’s shareholder, which is LTAT. 

LTAT privatised and delisted BHB in June this year. Meanwhile, BHB has 57.42% equity interest in BPlant.

After the completion of the SCA, BHB and LTAT will still own 35% of BPlant.

Some 46% of BPlant’s planted hectarage of 72,291ha is past their prime. The replanting cost for these is expected to cost RM150 million a year or RM1 billion over six years.

Under the proposal, the entire replanting cost will be in KLK’s balance sheet.

One feature of the SCA is the carving out of two parcels of plantation land located in Penang and Selangor to LTAT to undertake property development. These lands have a gross development value of at least RM8 billion.

It is understood that the privatisation of BPlant has now gone into a phase of tough negotiations as LTAT delays the approval of the deal.

The deal, which will see BHB pocketing over RM1 billion in proceeds, will help the group address its total debt of RM7.4 billion as at March 31, 2023.

According to BHB’s last quarterly financials, in the first quarter ended March 31, 2023, before it was delisted, it had RM626.4 million of perpetual sukuk, which carry a coupon rate as high as 11.6%. Note that it has RM500 million in medium-term notes that are due next year.

If BHB defaults on its debts, one of those affected would be Affin Bank Bhd. 

The source familiar with LTAT says that Minister of Defence Datuk Seri Mohamad Hasan is supportive of the deal as it needs to be done to sustain the retirement fund.

“Only 22% of its assets are liquid. The rest not liquid as they are held in the form of long-term equities and not giving the desired returns. LTAT needs RM500 million every year to pay out 5% dividends. For a retirement fund, it’s very difficult when 80% of its assets are illiquid and not performing,” he says.

“The political pressure will scare away potential buyers or partners for other corporate deals involving LTAT,” says another source. 

Aside from KLK, other bidders known to have participated in the stake sale of BPlant include IOI Corp Bhd, Sarawak-based Samling Group, Tradewinds Plantations and YTL Group.

Among the five that put in their bids, only Tradewinds, which is owned by Tan Sri Syed Mokhtar Albukhary is a Bumiputera company.

In parliament, one of the two MPs asked why the stake was not sold to Sime Darby Plantations Bhd, which is owned by Permodalan Nasional Bhd. However, it is learnt that Sime Darby Plantations was invited but did not participate in the bidding process.

While KLK had been buying shares in BPlant on the open market since the SCA was announced, there have been no disclosures of share purchases since Sept 8.

The share price of BPlant, which had traded to an intra-day high of RM1.52 following the announcement of the SCA, eased to as low as RM1.45 last week. The counter closed at RM1.46 last Friday, valuing the company at RM3.27 billion. 

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