KULIM (Malaysia) Bhd is set to join the big league plantation players with the acquisition of plantation assets from Johor Corp (JCorp) that will increase its holdings from 66,000 to 140,000ha.
The move will turn the medium-sized company into the likes of IOI Corp or Golden Hope Plantations in terms of landbank size. It will also have a similar business structure with holdings in activities such as properties and oleochemical manufacturing.
We are in for exciting times. We have a lot of good things to tell investors, said Kulim managing director Ahamad Mohamad.
The deal will see Kulim acquiring EPA Management Sdn Bhd that owns plantation land in Sumatra and Kalimantan totalling 73,199ha and Kumpulan Bertam Plantations Bhd for another 1,027ha in Segamat.
Kulim will be paying JCorp a total of RM95mil through a combination of cash (RM41mil) and issue of shares at RM2.30 each. It has proposed to raise RM30mil through a rights issue to part finance the purchase.
At the end of the exercise, JCorp will slightly increase its shareholding in Kulim with a 56.4% stake from 52.2% before.
Ahamad said it was only logical for Kulim to move into Indonesia considering the cheaper entry cost rather than acquiring land of similar size in Malaysia.
Besides, we are familiar with the business there. We know what we are buying, said Ahamad, who, prior to the acquisition, was already the managing director of EPA Management.
A KL-based analyst, one of two tracking Kulim, said the company paid a fair price for the acquisitions.
Included in the RM80mil price tag for the Indonesian estates are some RM72mil advances by JCorp to start initial works.
A total of 13,000ha has been planted and we are aiming to complete 2,000ha a year from now on, Ahamad said.
He said plans were also under way to build a mill to serve the Kalimantan plantations and other independent planters in the area.
The cost will be about US$5mil and construction would commence some time in September or October with target for completion in a year, he said.
Another mill of similar size is currently operating in the Sumatra plantations.
The Indonesian plantations would start contributing to bottom lines in 2005, whereby sufficient cashflow would be generated to sustain more planting until a significant contribution is realised in 2009.
Until then, Ahamad said Kulim would still depend on its local business, which he said offered an equally exciting future, and its estates in Papua New Guinea whose prospects he described as the sky is the limit.
Its local estates are operating efficiently, yielding 22.4 tonnes per ha compared with the industry average of between 19 and 20ha.
Kulim has also successfully built its oleochemical business through NatOleo Sdn Bhd, now one of the largest producers in the country.
The plant, purchased ten years ago at a cost of RM33mil, is now producing 155,000 tonnes per annum compared with 45,000 tonnes before.
A total of RM100mil has been invested in NatOleo which is now producing fatty acids, glycerine and esthers almost entirely for the export market.
NatOleo contributed RM33mil in net profit last financial year and has the track record to be listed.
For a company that was very much rumoured to be divested due to the financial crunch faced by parent company JCorp, Kulim has managed to overcome all odds to hang on to the group, and to continue expanding its business at the same time.
JCorp chairman Tan Sri Mu- hammad Ali Hashim in his speech during last week's signing of the assets acquisition had commended Ahamad's entrepreneurial efforts in propping up Kulim's business to where it is today.
We were helped by the higher palm oil prices and also some divestment of land to reduce borrowings, said Ahamad.
Kulim's debts as of Dec 31, 2002, were made up of term loans of slightly more than RM500mil and short-term borrowings of RM200mil.
Last year, it managed to sell some 680ha of freehold agricultural land in Johor Baru and netted slightly more than RM200mil from it.
The entire proceeds will be used to settle borrowings, said Ahamad.
The sale of land also proves that Kulim has strategically located assets that can be easily liquidated for cash, according to Ali.
The high gearing situation has been effectively addressed. The sale also emphasised the point that the valuations of the properties in Ku- lim's books are realisable, Ali said, adding that the strong overall performance of Kulim continued with a net profit of RM34.4mil in its recent first quarter to March 31, 2003.