By NG MIN SHEN / Pic By TMR
DRB-Hicom Bhd is disposing of its stake in Alam Flora Sdn Bhd to Malakoff Corp Bhd for RM944.6 million in cash as the conglomerate seeks to pare down its borrowings and partly finance carmaker Proton Holdings Bhd.
The company said its wholly owned subsidiary, Hicom Holdings Bhd, has entered into a conditional share sale agreement with Tunas Pancar Sdn Bhd to sell its entire 97.37% interests involving 74 million shares in Alam Flora to the latter.
Tunas Pancar is fully owned by power generation company Malakoff.
“The proposed disposal provides an opportunity for DRB-Hicom to unlock the value and monetise its investment in Alam Flora at an attractive price. Based on the disposal consideration, the proposed disposal will give rise to an estimated net gain on disposal of approximately RM735.4 million,” DRB-Hicom told the exchange yesterday.
The group, which holds a 50.1% stake in Proton, said RM400.5 million of the proceeds will be used to repay its Islamic medium-term notes comprising principal amount expiring in February 2020, while RM99.5 million will be used to repay term loans expiring between April 2019 and October 2019.
As at March 31, 2018, the group’s total borrowings stood at RM5.79 billion.
A further RM444.61 million of the proceeds will go towards investments in existing businesses, which includes partly funding Proton’s capital expenditure for the development of new models as part of the carmaker’s turnaround plan, if required by Proton, as well as any future investment opportunities.
“This turnaround programme is underpinned by a 10-year business plan which involves quality improvements, cost optimisation and new model launches. The proceeds, if required by Proton, will be mainly used to part finance the development cost for new models expected to be incurred within the next 12 months,” said the company.
Upon completion of the disposal, Alam Flora will cease to be a subsidiary of DRB-Hicom.
Alam Flora has a concession agreement with the government up to Sept 1, 2033, to provide collection and public cleansing management services in Pahang, Kuala Lumpur and Putrajaya, and public cleansing management services within the cleansing zone.
In consideration of its undertaking said services, it receives monthly payments from the government, determined based on the tariff rate as set out in the concession agreement.
For the financial year ended March 31, 2018 (FY18), Alam Flora contributed RM813 million or 6.4% of DRB-Hicom’s total revenue, and RM99.4 million or 19.4% of the group’s profit after tax.
“There can be no assurance that the use of part of the proceeds for the investment purposes (for Proton and future opportunities) will generate sufficient returns to offset the loss in income stream following the completion of the proposed disposal,” the group said in the filing.
However, the company expects the proposed disposal to contribute positively to the group’s future earnings, when the benefits from the use of the proceeds from the disposal are realised.
The proposed disposal is subject to approval from shareholders of both DRB-Hicom and Malakoff, to be obtained at separate EGMs to be convened at a later date.
The proposed disposal is expected to be completed by the first quarter of 2019.