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Wednesday, December 16, 2015

United Malacca ventures into Indonesia with RM287mil purchase

KUALA LUMPUR: United Malacca Bhd (UMB) is venturing into Indonesia and doubling its plantation land at the same time by buying an 83% effective equity stake in PT Lifere Agro Kapuas (LAK) for US$66.4mil (RM286.7mil).

In a filing with Bursa Malaysia, the 105-year-old plantation company said the proposed acquisition would boost its plantation land to 48,695ha from 24,110ha currently. LAK has 24,585ha oil palm plantation land in Central Kalimantan.

“The proposed acquisition will also expedite UMB group’s upstream expansion as some 10,366ha have already been planted with about 10,140ha (with palm oil trees) less than five years of age,” it said.

The purchase is expected to be completed by the first quarter of next year.

Under UMB’s proposal, it would acquire an 88.2% equity interest in International Natural Resources Pte Ltd (INR), which in turn holds about 94.1% in LAK, from Durham Holdings Ltd unit Lincoln Wilshire Investments Ltd.

On the US$66.4mil purchase consideration, UMB said it took into account, among others, the land’s market value of about US$72.8mil (RM314.3mil) as appraised by independent valuer VPC Alliance (JB) Sdn Bhd last year and updated on Dec 1, 2015.

The price of US$66.4mil represents a premium of US$6mil or 8.2% to the market value of the land (based on the 83.0% effective equity interest in LAK).

Despite the premium, the board finds the purchase consideration fair as UMB, among others, would have a controlling stake over LAK, via INR, which would allow it to better manage the business operations and effectively direct the day-to-day administrative affairs of LAK.

In addition, LAK has already complied with the local regulatory requirements where at least 20% of its plantable area must be planted based on the Plasma scheme for smallholders.

Furthermore, LAK’s plantation land has a fairly young crop profile with 10,140ha of the planted palm oil trees having a maturity profile of less than five years of age and 226ha of the planted palm oil trees being older.

According to a back-of-the-envelope calculation that solely looks at price per hectare, UMB seems to be getting a sweeter deal than the one struck between Felda Global Ventures Holdings Bhd (FGV) and the Rajawali Group.

The US$66.4mil price tag for an 83% effective stake values the entire 100% stake at about US$80mil, which means that the price per hectare is US$3,254 (RM14,052).

FGV, on the other hand, had proposed to buy a 37% stake in PT Eagle High Plantations Tbk for US$680mil (RM2.93bil). Eagle High is reported to own 425,000ha of land bank, with 67% in Kalimantan and the rest in the Papua, Sulawesi and Sumatra provinces. That means a 100% stake of US$1.84bil translates into US$4,324 (RM18,672) per hectare.

UMB’s proposed acquisition is subject to Bank Negara’s approval but there is no need for approval of UMB’s shareholders or any other regulatory authorities.

In a separate filing with Bursa Malaysia, UMB announced a 10.5% drop in net profit to RM12.25mil for its second financial quarter ended Oct 31, 2015 compared to a year earlier due to 7% lower fresh fruit bunches (FFB) production.

On prospects for the current financial year, it said: “An additional 1,178ha of newly matured area came into harvesting. With the young age profile of the group’s oil palm, 81% of which is below 15 years, FFB output is expected to rise over the years.

“However, due to the severe drought experienced in Sabah for the past 10 months, FFB production for the current financial year will be below target.”

Despite the decline in net profit, the company would be paying first interim dividend of 8 sen for the current financial year, the same as last year’s dividend amount in the first half-year.

UMB (formerly The United Malacca Rubber Estates Bhd) was founded in 1910 by the late Tun Tan Cheng Lock. According to Bloomberg data, its biggest shareholder is Singapore-listed Oversea-Chinese Banking Corp Ltd (20.31%).

UMB shares closed one sen higher to RM5.86 on Tuesday.

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