Boustead unlocks value of its unit

KUALA LUMPUR: Boustead Holdings Bhd’s minority shareholders are in for a windfall as the company looks to unlock the value of its vast assets. Among other things, the board has proposed to distribute part of its stake in drugmaker Pharmaniaga Bhd to its minority shareholders to help meet the required 25% free-float to stay listed.

In a statement yesterday, Boustead said it proposed to raise RM171.23 million to cut borrowings by offering for sale its Pharmaniaga shares to its shareholders as well as its directors, employees and unidentified investors at RM5.75 apiece. Boustead will still own just under 55% of Pharmaniaga after the proposed dividend-in-specie and restricted offer for sale. To boost trading liquidity of its own shares, Boustead also proposed a one-for-10 bonus issue after paring down its holding in Pharmaniaga.

The conglomerate, which is 59.28% owned by Lembaga Tabung Angkatan Tentera (LTAT), said the exercise would enhance both companies’ shareholders’ value.

Besides the 16.02 million shares (14.97% stake) to be distributed to shareholders on the basis of one Pharmaniaga share for every 57.5 Boustead shares held, some 16.28 million Pharmaniaga shares (15.22% stake) will be offered to its shareholders (except for LTAT) at a cost of RM5.75 apiece on the basis of one Pharmaniaga share for every 24 Boustead shares held. This will raise RM93.6 million.

Boustead will further divest 13.5 million Pharmaniaga shares to LTAT, Boustead’s directors and employees as well as unidentified investors at the same price. LTAT will take up 1.5 million shares from this pool. This will raise another RM77.6 million, bringing the total raised to RM171.23 million.

Boustead will not make any loss or gain from the proposed share sale as the selling price is at par with its investment cost. The RM5.75 apiece price tag is, however, at a 2.5% discount to the RM5.90 Pharmaniaga shares that were suspended on June 9.

“Based on the annualised earnings per share of Pharmaniaga for the quarter ended March 31, the proposed offer price represents a price-earnings (PE) multiple of 9.9 times,” said Tan Sri Lodin Wok Kamaruddin, Boustead deputy chairman and group managing director, in a press statement yesterday. “These multiples are clearly within the range of companies trading in the pharmaceutical sector, and based on the counsel of our financial advisers we consider these multiples fair and attractive,” he said.

Boustead’s gearing will fall from 0.75 times to 0.72 times following the proposed distribution and restricted share sale while its net assets per share will ease from RM4.50 to RM4.40, the announcement said.

To recap, In June last year Boustead proposed to buy an 86.1% stake in Pharmaniaga for RM534 million, or RM5.75 a share, from the UEM group in a bid to expand its pharmaceutical business. Following the exercise, which was completed late-March this year, Boustead held 97.81% of Pharmaniaga.

Boustead has until year-end to cut its holdings to 75% to comply with Bursa Malaysia’s free-float rules.

“As Boustead has recently taken management control of Pharmaniaga, we are confident that over the next few quarters of this financial year, we will deliver a better bottom line for Pharmaniaga,” said Lodin.

“Our confidence stems from the fact that with the growth in population in Malaysia, the demand for pharmaceutical products will grow particularly due to the advent of new hospitals, clinics in rural areas, community health clinics and 1Malaysia clinics under the 10th Malaysia plan.”

It has been reported that Lodin, the chairman of Pharmaniaga, expected the company to account for about 15% of the Boustead group’s bottom line in five years. It was also reported that the company anticipated Pharmaniaga’s contribution to account for about 10% of the group’s bottom line this year.

Boustead was among the top losers on Bursa Malaysia yesterday. It shed 13 sen or 2.15% to close at RM5.93 with 1.5 million shares changing hands. As for Pharmaniaga, the counter has gained some 8.26% this year up to its suspension on June 9. It traded between RM5.05 and RM6 over the past one year.