KUALA LUMPUR (NewsRise) -- Sime Darby, the world's largest palm oil producer by acreage, is selling a 10% stake in Malaysia-listed property developer Eastern & Oriental in a 342.2 million ringgit ($83.5 million) deal.
The proposed sale to Paramount Spring Sdn Bhd -- a private company owned by Eastern & Oriental's managing director Terry Tham -- will yield a one-off gain of 46.9 million ringgit, Sime Darby said in an exchange filing. Sime Darby's stake in Eastern & Oriental will be reduced to 12.2% after the sale, while Tham's holding will rise to 21%.
Analysts say the stake sale dovetails with Sime Darby's asset monetization plan as the company grapples with a slump in profits at a time when low commodity prices are weighing on its mainstay plantation business.
"We are positive on this news as we view the disposal price to be attractive," said CIMB Investment Bank analyst Ivy Ng. "We also expect the disposal to enhance the group's future net profit as the potential interest savings from the proceeds more than offset the loss in net income from E&O."
Sime Darby is selling about 126 million shares at 2.60 ringgit apiece and its entire 48.8 million convertible warrants at 0.30 ringgit each in Eastern & Oriental. The disposal price represents a 63% premium to Eastern & Oriental's Friday share price and a 62% premium to its convertible warrant price.
Proceeds from the proposed disposal will be used for working capital purposes, Sime Darby added.
"Despite being a part of its asset monetization plan, we believe the disposal was targeted to retain key management and to prevent substantial change in the management of E&O," said TA Securities analyst Angeline Chin, noting that the deal is Sime Darby's second such stake sale to Tham.
In August 2011, Sime Darby bought a 30% stake in Eastern & Oriental at 766 million ringgit, or 2.30 ringgit per share, from Tham and other major shareholders in bid to collaborate and expand its property development business.
Sime Darby raised its stake in the developer to about 32% in July 2013 by purchasing shares from the open market before selling the equivalent of 9.9% stake to Tham a year later.
"This move to increase my stake in the company is a reflection of my continued conviction and confidence in the E&O and the brand that has been built through the years," Tham said. "I strongly believe that the group has tremendous potential and I am keen to participate in its long-term growth trajectory."
In the January-March quarter, Sime Darby booked proceeds of 406.3 million ringgit from selling two Singapore subsidiaries and a gain of 138.7 million ringgit from a land sale. The disposals lifted fiscal third-quarter net profit by 60%.
Still, net profit declined 11% year-on-year for its first nine months due to lower crude palm oil prices. Sime Darby's industrial equipment division suffered from slowdown in construction and mining sectors while sharp decline in car sales weighed on its automotive division.
Sime Darby is also in the process of selling another property in Singapore and 14 industrial assets in Australia as part of its monetization exercise. The deals are expected to be completed by the next financial year.
Shares of Sime Darby rose 0.9% to 7.59 ringgit on Monday while Eastern & Oriental shares ended 3.1% higher. The benchmark FTSE Bursa Malaysia KLCI closed up 0.8%.