Unico-Desa to list HP unit

KUALA LUMPUR: After a long wait, the minority shareholders of Unico Holdings Bhd, an unlisted cooperative, may realise some of their investment in Unico-Desa Plantations Bhd (UDP). UDP has proposed to distribute shares in the group’s hire purchase (HP) arm ELK-Desa Resources Sdn Bhd pursuant to the listing of the unit.

But it is still early to determine if it is indeed a good deal for Unico’s members or the shareholders of UDP. The question is, will the listing of ELK-Desa Resources be priced at an equal or higher earnings multiple than UDP’s 17.18 times historical earnings? If it is not, the HP business could be better off kept within UDP, said market observers.

In an announcement to Bursa Malaysia yesterday, UDP, in which Unico owns a 29.59% stake, proposed to list ELK-Desa Resources. The unit owns 100% of ELK-Desa Capital Sdn Bhd, whose principal activity is HP financing, and ELK-Desa Risk Agency Sdn Bhd, which deals in insurance and automotive trader ELK-Desa Marketing Sdn Bhd.

The listing exercise would involve the distribution of 86.51 million shares or a 86.51% stake in ELK-Desa Resources to UDP shareholders on a 1-for-10 basis while another 13.49 million shares will be offered for sale to UDP shareholders under a restricted offer for sale (ROS).

UDP said the rationale for the listing of ELK-Desa Resources is to unlock value and reward existing shareholders by enabling them to hold marketable shares in the HP arm directly. The listing would also enable ELK-Desa Resources to gain access to capital markets to raise funds for its future expansion and growth, it said. ELK-Desa Resources is also proposing a public issue of 25 million new ordinary shares of RM1 each, representing 20% of its enlarged issued and paid-up share capital.

Given Unico’s shareholding in UDP, it stands to receive 25.6 million distribution shares and is entitled to subscribe for about four million shares in ELK-Desa Resources. There are no near comparisons for a standalone listed HP firm on Bursa Malaysia, but note that ELK-Desa Resources makes decent profit, having contributed RM15.22 million or 28.8% of UDP’s after-tax profits of RM52.85 million for FY11 ended March 31.

Assuming UDP’s 17.18 times price-earnings ratio, the whole of ELK-Desa Resources could be worth some RM261.5 million, with Unico’s stake valued at about RM77.4 million. That is much more than its receipt of dividend income from UDP of about RM30.2 million from FY09 to FY11. But again, that is assuming the HP unit can fetch such high valuation currently attributed to UDP, whose core business is oil palm plantations.

In addition, it is not known whether the distribution shares received by Unico will be distributed to its members or shareholders or that the cooperative will seek to place out some ELK-Desa Resources shares in an initial public offering. Minority shareholders or small members own about 80.62 million shares or 82% of Unico.

How Unico handles the distribution shares of ELK-Desa Resources could attract interest.

About three years ago, there was a tussle between the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM), which teamed up with ousted Unico director Tan Hai Kee (also a major shareholder of Hai-O group), against the then Unico board of directors on the proposed distribution of UDP shares.

Unico’s board had then proposed a capital reduction exercise in the cooperative followed by the distribution of UDP shares to its 22,200 shareholders. But the scheme was denounced by Tan, who claimed the proposed capital reduction and distribution of UDP shares was detrimental to the interests of minority shareholders of the cooperative.

Tan had argued that small shareholders could gain more from an en bloc sale of UDP to a major buyer instead of receiving the distributed shares. He had also alleged that the share distribution exercise could consolidate the interests of UDP’s managing director and 27.92% shareholder Teoh Hock Chai, who also happened to own some shares in Unico.

Unico’s board countered that the proposal would allow its shareholders to cash out after holding the unlisted shares for more than 20 years.

Unico closed at RM1.05 yesterday, up five sen, with 3.3 million shares traded.