KUALA LUMPUR (Nov 20): XL Holdings Bhd is buying 25% equity interest in Sabah-based Samajutera Sdn Bhd to venture into seaweed cultivation activities through Samajutera’s 70%-owned subsidiary, WAF Holding Sdn Bhd. WAF Holding is a 70:30 joint venture (JV) between Samajutera and Inno Resource Development Sdn Bhd (IRD) — a subsidiary of Innoprise Corp Sdn Bhd, which is an investment arm of Yayasan Sabah.

XL said the proposed investment forms part of the group’s long-term business strategy as it is currently involved in the businesses of foods distribution, fish farming, merchandise, edible bird nest operations and growing crops.

In a filing with Bursa Malaysia on Monday, XL said it has entered into a binding term sheet with Ahmad Marzuki Nasir @ Abdu Salam and Wong Kiong Lien on the proposed investment. Marzuki and Wong currently hold 50% each of the total equity of Samajutera.

Under the deal, XL will buy 12.5% of Samajutera shares from Marzuki and another 12.5% from Wong, comprising 250,000 ordinary shares, for a total of RM15 million or at RM60 per share.

WAF Holding currently holds a concession to carry out cultivation and management of large-scale seaweed farming, aquaculture and eco-tourism on several parcels of land situated in Semporna, Sabah — Pulau Timbun Mata measuring 9,300ha, Pulau Bait measuring 55.23ha, Pulau Sibangkat measuring 1,000 acres and Pulau Kerindingan measuring 4,000 acres.

"By a sub-lease agreement dated June 24, 2022 between IRD and WAF Holding, IRD has agreed to sub-lease the lands to WAF Holding for a term of 30 years commencing from Aug 1, 2022, with an option to renew the sub-lease for another 30-year term following the expiry of the first sub-lease term," said XL.

Meanwhile, under the proposed investment, XL will provide a five-year shareholder loan of up to RM15 million to WAF Holding as working capital for the purpose of seaweed cultivation activities. "An initial loan disbursement of RM3 million to WAF Holding, with timing and quantum of subsequent loan disbursements for working capital and capital expenditure to be decided by the board of WAF Holding and ratified by the board of directors of Samajutera," said XL.

XL added that as security for the loan, the Marzuki and Wong will at initial disbursement of the loan, pledge via a security agreement with XL for a total of 260,000 ordinary shares (equivalent to 26%) in Samajutera. The share certificates and the duly signed share transfer forms for the pledged shares will be deposited with a mutually agreed stakeholder.

In the event that WAF Holding defaults on the loan at the end of the five-year term, XL will be entitled to enforce the security agreement and receive the pledged ordinary shares in Samajutera as settlement of any outstanding and unredeemed on a pro-rata basis equivalent to RM57.69 of outstanding loan per pledged ordinary share in Samajutera.

XL said the source of funds will be derived from a combination of internal funds, bank borrowings and/or external fund-raising exercise. XL's cash and bank balances stood at RM3.58 million as at July 31, 2023.

"The board expects the proposed investment to be earnings accretive and to continuously deliver sustainable value to shareholders of XL in the medium and long term," it said.

Barring any unforeseen circumstances, the transaction is expected to contribute positively to the group's earnings and earnings per share as the earnings would be realised in stages over the tenure of the term sheet, XL added.

The investment is not subject to approval of the shareholders and the regulatory approval of any government authority.

XL closed down 0.5 sen or 0.58% at 85 sen on Monday, with 2.67 million shares done, giving it a market capitalisation of RM213.13 million.