• IOIC has entered into a SPA with Koninklijke Bunge B.V. (KBBV) for the disposal of 70% stake held in Loders Crocklaan Group B.V. (Loders) for a total cash consideration of USD595m plus EUR297m or equivalent to RM2.54m and RM1.51m respectively.

• Based on the indicative disposal consideration, IOIC Group is expected to record a gain RM2,505.80m from the proposed disposal and from the re-measurement of IOI’s remaining 30% stake in Loders.

• We are positive on this proposal. The deal would allow 1) Loders to leverage on the size of Bunge’s operations by tapping into Bunge’s expertise and extensive geographical coverage, 2) unlock partially IOIC investment in Loders Group, and 3) divest its business risk in Europe and US.

• Maintain HOLD with TP of RM4.74.

Details of the proposed disposal

IOIC’s had on 12 September 2017 entered into a definitive sale and purchase agreement with Koninklijke Bunge B.V. (KBBV) for the disposal of 70% stake held in Loders Crocklaan Group B.V. (Loders) for a total cash consideration of USD595m (RM2.54m) plus EUR297m (RM1.51m).

As part of the conditions in SPA, prior to the completion of the proposed disposal, IOIC is required to complete an internal restructuring exercise, which involves Loders acquiring all of IOIC’s equity interest in 1) IOI Lipid Enzymtec Sdn Bhd (IOILE), a wholly-owned subsidiary of IOIC, and 2) IOI Edible Oils (HK) Limited (IEO HK), a wholly-owned subsidiary of IOIC.

Rationale

According to the announcement, the rationale of the proposed disposal is to 1) allow Loders to leverage on the size of Bunge’s operations by tapping into Bunge’s expertise and extensive geographical coverage, 2) unlock or monetize IOIC investment in Loders Group with expected gain of RM2,505.80m, and 3) provide financial flexibility for the Group to undertake potential future investments, pare down borrowings of IOIC Group and enhanced shareholder’s value which include vis cash dividend distribution to be undertaken by IOIC.

Source: BIMB Securities Research - 13 Sept 2017