Late Friday last week, little known Pinehill Pacific Bhd (formerly known as Multi Vest Resources Bhd, which by the way was formerly known as Best World Land Bhd) surprised the market with the announcement that it was parting with nearly 9,000 acres of landbank and related plantation assets held via three subsidiary companies to United Plantations Bhd (UP) for a whopping sum of RM413.6mil.

UP is in actual fact paying approximately 10.9% premium to the total market value of the assets acquired. What was interesting is that Pinehill Pacific (PP) is a smallish plantation based company with a market capitalisation of just under RM21mil prior to the announcement and hence, the deal itself was close to 20 times its equity market value.

Looking into the PP announcement, the sale will result in the company’s total shareholders’ funds rising by approximately RM150mil or RM1.00 per share while its earnings for the year will improve by RM87mil or by about RM0.58 per share. PP intends to utilise the proceeds from the sale by paying off the borrowings as well as creditors of the plantation companies it is selling to UP amounting to RM236.5mil. This effectively means that UP is getting the plantation assets on a clean basis and without any debts or outstanding payments to be assumed. PP is only expected to utilise some RM70mil from the sale proceeds for its Indonesian plantations venture and another RM75mil left in its kitty as working capital.

The plantation asset sale basically is a windfall for PP as it enables the company to clean up its balance sheet. PP’s last reported fourth quarter results ended June 30 showed the company’s net asset per share stood at RM0.60 and hence the sale will result in its net assets rising to RM1.60 per share on a proforma basis. Thus, the rally that we saw last Friday and into early part of this week was perhaps a natural reaction to the proposed disposal.

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