Kulim in a quandary

by **Cals** Sat 24 Aug 2013, 23:31

Published: Saturday August 24, 2013 MYT 12:00:00 AM
Updated: Saturday August 24, 2013 MYT 7:19:04 AM
Kulim in a quandary
BY NG BEI SHAN
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New Britain Palm Oil plantation. The company is listed on the London and Port Moresby stock exchanges.

IT is now becoming increasingly clear that Kulim (M) Bhd’s launch of the partial general offer for New Britain Palm Oil Ltd’s (NBPOL) shares is one that could have been better thought through.
Not only was Kulim’s offer strongly challenged by the independent directors and even chief executive officer of NBPOL, Nick Thompson, it has now come under attack from the regulator in Papua New Guinea (PNG).
As a result, it is now possible that the partial offer for NBPOL’s London-listed shares may also not be valid.
This, in turn, means that Kulim now faces the ire of shareholders of the London-listed NBPOL who had planned on selling their shares to Kulim at the £5.50 (RM28) share price, in the event the offer is now off the table.
The question is, will these shareholders be paid their money if they had accepted Kulim’s partial offer or in other words, does Kulim’s partial offer still stand, considering statements issued by the Securities Commission of Papua New Guinea?
An industry observer opines that the partial offer will be rendered invalid.
“It would have made more sense for them to launch a general offer concurrently on both stock exchanges that they are listed on,” he says, adding that a full general offer would have been a better idea than a partial one.
The observer also points out that Kulim’s management and advisors should have realised that their move would raise concerns by the Papua New Guinea regulator, considering that NBPOL is one of the heavyweight stocks listed there.
NBPOL is listed on the London and Port Moresby stock exchanges.
Kulim had appointed Citigroup Global Markets Ltd as its international financial adviser, RHB Investment Bank Bhd as the Malaysian financial adviser, Norton Rose Fulbright as the international legal counsel and Leahy Lewin Nutley Sullivan Lawyers as PNG’s legal counsel for the deal.
This week, the Securities Commission of PNG had ordered Kulim to stop acquiring any shares in NBPOL. The plantation company was also barred from further publication of its takeover offer on any type of media platform.
The Commission stated a litany of reasons for its stand, which included NBPOL’s inconsistent shareholding records, Kulim’s failure to advise the commission of its takeover intentions and failure to serve the takeover notice on the Commission.
In a letter to Kulim’s legal counsel, the PNG regulator also pointed out that the partial takeover is not in the national interest of PNG as it would have “significant consequences to the country”.
Among others, it says the exercise will dilute PNG shareholders’ interest in NBPOL and reduce its market liquidity and free float of shares. There would also be a loss of small oil palm block holders, and also raised the prospect of possible job cuts and a delisting of NBPOL from both stock exchanges it is listed on which in turn could lead to little or no local representation in the ownership of NBPOL.

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“Once NBPOL becomes a subsidiary, the target company will lose its independence and major decisions of the company will be made by Kulim. The Commission views that this is not in the interest of the country,” it said.
“NBPO is the pride of PNG and the West New Britain Province (which owns 12% of NBPOL), and a renowned flagship that float their name on the international financial and commodity markets.
“By far, it is the gold mine on the island that provides income for vast number of families in the country. It is an integral and significant asset of this country,” the Commission said.
One the issue of why Kulim did not conduct a full general offer for NBPOL – which has been a point of contention from many quarters considering that those wanting to sell into the offer may not see all their offer shares accepted by Kulim – analysts have pointed out that Kulim probably could not afford to launch a full general offer.
As at end-December, Kulim had borrowings amounting to RM1.12bil while cash and cash equivalents stood at RM222.34mil
Assuming the offer is fully accepted and funded by debt, Kulim’s loans will expand to RM2.89bil, pushing its gearing from 0.17 times to 0.46 times, which is above the sector’s average of 0.3 times.
Kulim, however, has said that it has secured loans from a “reputable financial institution” to bankroll the takeover and will decide on the exact proportion between internal funds and borrowings later.
That, of course, is less of a worry now. Considering the strong statements from the PNG regulator, it is left to be seen how Kulim will get out of this quandary it is in.