KUALA LUMPUR (June 9): British American Tobacco (M) Bhd (BAT) is disposing of its factories and two parcels of leasehold land measuring 5.3ha in Virginia Park, Petaling Jaya, Selangor, for RM218 million cash.
In a bourse filing yesterday, BAT said its wholly-owned subsidiary Tobacco Importers and Manufacturers Sdn Bhd (TIM) had entered into a conditional sale and purchase agreement (SPA) with LGB Properties (M) Sdn Bhd for the asset disposal. LGB Properties was the winner of a public tender conducted for the disposal.
The disposal came after BAT announced that it would be shutting down its manufacturing operations in Petaling Jaya in stages, as it restructured its business operations in Malaysia due to an increasingly challenging business environment.
BAT said then the closure of its manufacturing operations would affect about 230 employees. The restructuring is targeted to be completed by the second half of 2017.
Based on the purchase price, BAT is expecting a net gain of about RM148.78 million or 52.1 sen per share after taking into consideration the audited net book value of the property, the estimated expenses to be incurred for the proposed disposal, and the real property gains tax.
The price tag, however, is below the market value of RM262.5 million for the assets, as appraised by DTZ Nawawi Tie Leung Property Consultants Sdn Bhd on April 22, 2016. BAT said the market value of the land parcels is RM216.8 million, whereas the market value of the buildings is RM45.7 million.
Still, the proceeds are poised to boost the cigarette producer’s cash and bank balances up to RM256.47 million, from its current cash pile of RM38.47 million as at March 31, 2016.
The property was previously acquired by TIM on Nov 25, 1996 at RM62.39 million from BAT, which was then known as Rothmans of Pall Mall (M) Bhd.
BAT said the use of the sale proceeds will be reviewed and determined by end-2016. The sum may be distributed as dividends, used to undertake a capital reduction and/or repay current revolving credit facilities.
The disposal is subject to BAT shareholders’ approval within three months from the date of the SPA.
The group expects to complete the disposal by the end of the year.
“The proposed disposal is in line with the company’s intention to cease TIM’s factory operations further to its objective to restructure its business operations in Malaysia by sourcing tobacco products for the domestic market from other BAT group factories regionally,” the filing read.
Aside from the SPA, TIM and LGB Properties also executed a tenancy agreement for the former to rent these properties for 12 months on a monthly rental of RM1.09 million.
BAT said TIM may request to extend the tenancy for two further terms of six months at the same monthly rental.
BAT was the biggest loser yesterday. Its share price fell by RM1.60 or 3.09% to RM50.20, with a market capitalisation of RM14.43 billion.
This article first appeared in The Edge Financial Daily, on June 9, 2016. Subscribe to The Edge Financial Daily here.
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