Chemical Co of Malaysia, CCM Duopharma to be demerged


KUALA LUMPUR: Chemical Co of Malaysia Bhd (CCM) has become the latest Permodalan Nasional Bhd (PNB)-controlled group to be put under a restructuring plan, which will see it divesting its pharmaceuticals business free of charge and raising funds totalling RM257.6mil.

CCM, which is owned just over 70% by the state-owned fund manager, announced a series of proposals on Wednesday ranging from a private placement and land disposal to the distribution of 73.37% equity interest in the country’s largest pharmaceutical manufacturer CCM Duopharma Biotech Bhd to CCM’s shareholders.

CCM’s unit CCM Marketing Sdn Bhd, which owes RM474.1mil  to its parent company (CCM), will transfer all its shares in CCM Duopharma - the 73.37% stake - to the latter as settlement.

This represents an indicative transfer cost of RM2.32 per CCM Duopharma share. (CCM Duopharma shares were last traded at RM2.11 each prior to their trading suspension on Wednesday.)

CCM will seek a waiver from the Securities Commission from the obligation to undertake a mandatory takeover offer.

The proposed distribution and capital reduction that follow will be done by reducing CCM’s share capital by RM462.9mil in consideration of the redistribution of all the now-directly-held CCM Duopharma shares to its shareholders. The entitled shareholders of CCM will then be able to participate directly in the equity of CCM Duopharma at no cost.

After the disposal of CCM Duopharma, CCM, which last year completed its exit from its long-time fertiliser business, will be left with the chemicals and polymers divisions.

CCM said the proposed distribution and capital reduction would further the growth of each division by ensuring that each division receive the focus and investment needed to support its growth.

Moreover, it said, shareholders and other investors would be able to separately assess and evaluate the individual financial performance, merits and prospects of CCM and CCM Duopharma.

“With direct ownership in chemical and polymer coating as well as pharmaceutical company following the completion of the proposed distribution and capital reduction, the entitled shareholders of the company can manage their investment exposure or rebalance their portfolio in each of these businesses independent of each other according to their individual investment objectives,” CCM said.

Prior to the distribution and capital reduction (which is scheduled to be done by January next year), there will be a proposed placement of new shares representing 10% of CCM’s share capital to investors to be identified. The placement is targeted for completion by October 2017.

At an indicative issue price of RM1.49 per placement share, the exercise will raise up to about RM67.6mil in proceeds, of which RM35mil will be used to repay bank borrowings and RM30mil will be used as working capital. (The actual issue price will be announced later.)

The repayment of RM35mil bank borrowings from part of the proceeds is expected to result in interest savings of some RM1.7mil per year based on the average effective interest rate of 4.92% per year.

Following the placement, distribution and capital reduction, CCM proposed to do a share consolidation to improve CCM’s capital structure, which is expected to increase the earnings per share and net asset per CCM share without affecting shareholders’ shareholding.

This entails the consolidation of every three existing CCM shares into one consolidated share held by shareholders.

CCM also announced the proposed disposal of its 70.93-acre land in Shah Alam to fast-moving consumer goods distributor GBA Corp for RM190mil in cash to pare down its borrowings and improve its gearing. The sale is expected to be completed by March next year.

CCM said as part of the continuous de-gearing strategy, the group had identified other non-core assets for disposal, namely an industrial land in Nilai, Negri Sembilan, and its 8.45% equity stake in South Korea-listed PanGen Biotech Inc.

Following the proposed exercise, PNB will hold 64.29% in CCM and 47.17% directly and 3.26% indirectly (via Amanah Saham Bumiputera) in CCM Duopharma. Assuming PNB fully subscribed to the placement shares, its shareholding (direct and indirect) will rise to about 57.14%.

CCM and CCM Duopharma, suspended on Wednesday pending the announcements, will resume trading from 9am on Thursday.

CCM shares were last traded at RM1.69, while CCM Duopharma shares, as mentioned earlier, were last done at RM2.11.
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