Published July 27, 2009

Sunway eyes M'sian assets of Heidelberg

But some wonder if over RM880m asking price is too high

By S JAYASANKARAN
IN KUALA LUMPUR

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CONGLOMERATE Sunway Holdings may be the only bidder left for the Malaysian assets of German heavy building materials producer Heidelberg Cement AG but industry executives are wondering if the asking price - over RM880 million (S$363 million) - is a bit too steep for the Malaysian firm's balance sheet.

Still, if the deal goes through, it will be a homecoming of sorts but at more than double the price. During the Asian financial crisis, Sunway sold its quarries and ready-mix concrete plants to Australian firm Pioneer International for RM380 million. Pioneer was later taken over by British firm Hanson which, in turn, was acquired by Heidelberg in 2007.

In June, the German firm completed an 8.7 billion euros (S$17.8 billion) loan restructuring, a debt burden that arose partly because it bought Hanson at the top of the market. Now it's looking to sell some of its global assets to pare debt.

In April, Standard Chartered, on behalf of Heidelberg, issued an information memo on the German firm's Malaysian assets to a limited number of parties for possible sale. Called Project Harmony, the memo detailed the Malaysian operations, its cash flows and its future potential, industry executives told BT.

There was no dearth of interest as the operations - grouped under Hanson (Malaysia) - are both profitable and well-managed. For the year to December 2008, Hanson posted a net profit of RM98 million on revenues of RM856 million. It also had net cash of RM58 million; according to the executives, however, the cash is not part of the deal and would revert to the German firm.

The interested parties, according to the executives, included Hong Leong's Tasek Cement, the Malaysian unit of Switzerland's Holcim, YTL Cement, Hap Seng Consolidated, and at least two French private equity firms. Other sources indicated that Singapore's GIC could be an interested party but that may be connected to Sunway's bid: GIC has an interest in Sunway.

Even so, the bids varied. Hap Seng first offered RM500 million, for example, and later dropped its bid to RM320 million. The executives said that Tasek could have offered RM500 million but they maintained that nearly all the Malaysian companies, except Sunway, were probably out of the running.

Hanson has 20 quarries, 18 asphalt plants and 51 ready-mixed concrete plants and it is the market leader in both aggregates and asphalt while it is Malaysia's second largest producer of ready-mix. But the executives said that the quarries had been exploited for over 15 years and many of them were on short-term leases.

The attraction of Hanson, however, lies in the fact that anyone acquiring it would benefit from Malaysia's infrastructure spending through the various stimulus packages and the development of Iskandar Malaysia development region. It could explain Sunway's interest including the fact that many of the assets used to belong to it anyway.

Whether the group will have the balance sheet to fund the acquisition is another matter. It has cash reserves of RM117 million and net debt of RM669 million against RM639 million of shareholders' funds.

But its group chief executive Jeffrey Cheah has always been big on expansion. Four months ago, he told BT that the current downturn was an 'opportunity' to acquire assets.