Published November 3, 2009

Kuok group to sell sugar units for RM1.25b

It also intends to sell 5,797 hectares of land in Perlis for RM45m to Felda

By PAULINE NG
IN KUALA LUMPUR

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GIVEN that Robert Kuok is synonymous with the sugar trade, few would have envisaged the tycoon leaving the business that earned him the moniker Sugar King.

His PPB group announced late Friday that it planned to sell its entire stake in two local refining businesses to Felda Global Ventures Holdings for a total of RM1.25 billion (S$510.5 million) cash.

Felda Global is a wholly owned subsidiary of federal government agency Felda which is in charge of the country's agriculture agenda. It would buy PPB's 100 per cent interest in Malayan Sugar Manufacturing Company for RM1.22 billion and its 50 per cent of Kilang Gula Felda Perlis for RM26 million.

The Kuok-controlled PPB also intends to sell to Felda 5,797 hectares of land in Perlis for RM45 million cash - a sale in which the Perlis chief minister also wants to be given an option to acquire, according to a report in the New Straits Times.

Overall, PPB would net RM758 million from the three disposals, realising its investments with 'a substantial gain,' the company stated to the exchange.

The net proceeds would be used for 'other strategic investment options and opportunities that may be available to the group both domestically and overseas,' it said, although senior executives have assured PPB is looking to buy local assets.

Even so, analysts who conceded to be taken aback by PPB's sugar exit in Malaysia, do not see what better domestic assets could be bought with RM1.3 billion. 'Moreover, Kuok has been taking money out so why would he buy local assets?' asked an analyst, pointing to PPB's 2006 sale of its plantation assets to Singapore-listed Wilmar International under a share swap exercise involving its subsidiary PPB Oil Palms which was then de-listed.

Indeed, there are those who think PPB could use the RM1.3 billion to increase its stake in Wilmar beyond the 18 per cent it currently holds, and reap the benefit when it lists its China unit in the future.

But based on current prices, PPB would only raise its stake by a mere 1.3 per cent, according to OSK Research. That would lift its pre-tax profit by RM60 million versus RM165 million foregone from sugar refining and trading. As such, it is doubtful the proceeds would be used to buy more shares in its associate company which contributed RM519 million or nearly 72 per cent of PPB's pre-tax profit of RM714 million for the fiscal six months to end June.

What Mr Kuok, now a Hong Kong resident, has in mind for PPB is difficult to fathom. Johor-born Mr Kuok is one of five advisers to Iskandar Malaysia but has not made any significant investments in the state or country in recent years. About five years ago, the billionaire had also sold off his listed Johor-based property unit, Pelangi, to Permodalan Nasional.

A PPB executive indicated the sugar business had become increasingly tedious for the group. Because sugar price is controlled by the federal government which subsidies the costs, margin pressures were inevitable whenever raw material costs rose.

Besides the three disposals, PPB's 49 per cent associate, Grenfell Holdings, also plans to sell to Felda its 59.2 million shares representing a fifth of Tradewinds Malaysia for RM207.5 million, or RM3.50 per share.

In view of the future cash horde, investors are not discounting the possibility of a special dividend. PPB closed 20 sen higher to RM15.34 yesterday.