Sime Darby Plantation (Sime Plant) and five of its subsidiaries are being sued by Indonesian company, PT Asa Karya Multi Pratama (AKMP) in Jakarta, Indonesia over the failure of fulfilling the sale and purchase agreement for the disposal of two subsidiaries that was scheduled to be signed on 1st Sept 2021. The plaintiff alleged that Sime Plant has snubbed the deal and unlawfully offered shares in the two subsidiaries to a third party. In response, Sime Plant said the claim was misdirected as it did not have any contractual relationship with the plaintiff. Pending the court judgement, we maintain Neutral with an unchanged TP of RM5.09.

• What happened? The plaintiff is alleging that an agreement between the Plaintiff and two of Sime Plant’s subsidiaries valued at IDR1.65bn (RM483m) to acquire PT Ladangrumpun Suburabadi and PT Sajang Heulang has been established in a good faith given that the down payment was made to them, but soon after, the down payment was returned to the Plaintiff, AKMP. AKMP also alleged that Sime Plant had snubbed the deal and unlawfully offered shares in the two subsidiaries to a third party. The plaintiff also claimed that two of Sime Plant’s subsidiaries have committed fraud in this deal by convening that the sale and purchase transaction requires further approval from the company’s board.

• Sued for huge compensation. AKMP, is seeking material compensation of IDR882.5bn (RM258m) and immaterial compensation of IDR5trl (RM1.46bn) for loss of reputation. That is more than Sime Plant’s current cash level of RM589m. In addition, a security seizure on the assets of the Sime Plant to secure the material and immaterial damages suffered by the Plaintiff.

• Standing firm. Sime Plant said that its lawyers advised that all the defendants have sufficient legal basis and merits to defend the claim. It also said the claim was also misdirected as it did not have any contractual relationship with the plaintiff.

• Likely a long-standing court case. Despite the claims from both parties, we think it could be a long-standing court case. Worst-case scenario, the loss of the court case could potentially wipe out Sime Plant’s net book value by 10%. In the near-term, the news flow will likely result in knee-jerk reaction to its share price.

Source: PublicInvest Research - 24 Mar 2022