JCorp debt can scuttle Kulim takeover: analysts

PETALING JAYA: The rumoured privatisation of Kulim (M) Bhd by parent company Johor Corp (JCorp) may be a tough feat to pull off considering JCorp's large debt, said analysts. Parties familiar with the situation also said that it is unlikely that JCorp would privatise Kulim.

Some concerns raised include the unwillingness of bankers to lend more money to JCorp should it seek to take Kulim private at an estimated RM1.8bil (based on Kulim's share price close of RM12.36 yesterday) considering JCorp's large debt of RM6.6bil.

Of this outstanding debt amount, RM3.6bil is due to be repaid by July 2012.

A business weekly, citing sources, reported over the weekend that JCorp was mulling the possible privatisation of Kulim after it turned down offers for Kulim's interests in fast-food chain operator QSR Brands Bhd and KFC Holdings (M) Bhd (KFCH).

StarBiz reported last week that JCorp had hired CIMB Investment Bank Bhd for a restructuring exercise aimed at dealing with its debt issues while retaining its prized assets such as KFCH.

The report, quoting sources, said the investment bank was asked to advise the group on what it needed to do, taking into consideration the bids made for its units and the need to deal with the debt due in 2012.

JCorp, via its 53%-owned subsidiary Kulim, had rejected two bids made in the past few weeks to buy QSR Brands and its undertakings.

While JCorp has over 200 companies, its key assets are its stakes in KFCH and London-listed New Britain Oil Palm Ltd (NBOP).

Kulim owns 51% of NBOP and 60% of QSR Brands, which in turn owns 51% of KFCH. JCorp's reason for turning down the offers was because it saw long-term value in the assets, namely KFCH.

This structure, however, makes it difficult for JCorp to extract value out of NBOP and QSR as any sale of these assets will result in JCorp only having access to half of the proceeds, if that money were to be paid back to shareholders of Kulim.

The business weekly said the the Kulim privatisation was part of JCorp's restructuring plan as it would increase its ownership of QSR and NBPO. JCorp owns some 30% of QSR via its 54% stake in Kulim but post-privatisation, JCorp's stake would increase.

JCorp would then own QSR and NBPO directly post-privatisation hence any subsequent disposals of both QSR and NBPO would mean the gains are realised in JCorp's books and need not be diluted by its ownership of Kulim.

But the problem is funding. It is easier for JCorp to dispose of its other directly-owned assets like its plantations and mills in Johor or even its direct stake in KPJ Healthcare Bhd. That should assuage the concerns of the lenders, said an investment banker familiar with the group.

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