DutaLand to sell land to IOI Corp for RM830m

KUALA LUMPUR: DutaLand Bhd has proposed to dispose of some 11,977.91ha of plantation land to IOI Corp Bhd for RM830 million cash.

In an announcement to Bursa Malaysia on Thursday, July 28, DutaLand said its initial investment in the land was RM33 million. The net book value of the properties was RM319 million as at end-June 2010 and DutaLand will make a gain of RM511 million from the proposed disposal.

It noted that the properties have been earmarked for divestment since 2007.

Proceeds from the sale will be used to redeem a portion of its irredeemable convertible bonds and the board is contemplating paring down borrowings with the remaining proceeds.

According to the announcement, some RM4 million will be used to cancel 7.5 million irredeemable convertible bonds, leaving the remaining amount at RM5.6 million. DutaLand's borrowings stood at RM240.1 million as at June 30, 2010.

Analysts said the funds would come in handy for the group to kickstart work on the remaining parcels of its prime property project in the vicinity of Sri Hartamas and Mont'Kiara.

DutaLand, formerly known as Mycom Bhd, formed a consortium with sister company Olympia Industries Bhd to develop an 88-acre (35.6ha) freehold tract in the area that was purchased more than 30 years ago. The land has been divided into nine parcels to be developed over 10 to 15 years.

The successful development of the project, known as Kenny Heights, is thought to be key to the revival of the group's property business. However, plans to kickstart the project have been beset by a series of failed joint-venture agreements and lack of funds.

The proposed disposal of plantation land is expected to be completed by the fourth quarter of the year. The transaction would reduce DutaLand's gearing to 0.17 times from 0.26 times while net assets per share would increase to RM2.30 from RM1.44.

The plantation land for disposal consists of five oil palm estates in the districts of Labuk and Sugut, Sabah. The land is close to IOI's estate, which it said could lead to further enhancements in economies of scale and operational efficiencies.

IOI said the proposed acquisition will be financed via internal funding or borrowings.

The proposed acquisition will increase the group's plantation landbank by 6.7% to 190,862ha in Malaysia.

According to IOI, the total planted area of the acquisition land is about 10,449ha, of which some 85% is at its prime with oil palm trees ranging between three and 15 years.

The yield from the plantation land at 10.59 tonnes per hectare is currently lower than IOI's average yields of 24.44 tonnes per mature hectare. Average industry yield is about 20 tonnes per hectare.

The IOI management intends to rehabilitate the estates upon completion of the acquisition to improve on the fresh fruit bunches production.

This exercise would also entail improvements on estate upkeep and maintenance to improve its yield to be in line with the other estates managed by the group.