Bloomberg reported that an undisclosed shareholder in Kuala Lumpur Kepong (KLK) has raised US$159mil after pricing the sale of its entire stake in the company above the midpoint of a marketed range.

• The shareholder will not have any holding in KLK after the sale.

• The investor priced the sale of 31.6mil shares at RM21.00/share. The shares in KLK were initially offered between RM20.50 and RM21.20. The final price represents a 7.8% discount below KLK’s share price of RM22.78.

• KLK has several foreign investors. We think that the investor who was selling the shares could be First State Investment Management, UK. According to Bloomberg, First State holds a 3.72% shareholding in KLK (before the placement).

• We believe that the sale of all of its shares in KLK by a foreign shareholder is a concern. We are unsure if other foreign funds will follow suit.

• We reckon that a reason for the exit could be ESG (Environmental, Social and Governance) concerns. Recall that KL Kepong’s Indonesian subsidiary had to close down 4 hectares of its estate recently due to fires.

• According to Bloomberg, First State does not hold shares in IOI Corporation or Sime Darby Plantation. Hence, it appears that First State only has investments in one plantation company in Malaysia i.e. KLK.

• IOI and Sime Darby Plantation’s main foreign shareholders are Vanguard, Black Rock, State Street Corporation and Government Pension Investment Fund Japan.

• As at end-July 2019, KLK’s foreign shareholding was 17.37% (before the placement). As at end-August, Sime Darby Plantation’s foreign shareholding was 10.26% (this number is from the company) while IOI’s foreign shareholding was 9.46% (from Bloomberg filings).

• Currently, we have a SELL recommendation on KLK with a fair value of RM23.12/share.

Source: AmInvest Research - 4 Oct 2019