NYALAS is a small town in Melaka known more for its rubber estates than anything else. In the corporate world, however, a Singapore-based privately-owned company with a similar name controls three undervalued listed entities that are about to be involved in an asset swap deal.

Lee Thor Seng, a low-profile Singaporean who is related to the illustrious Lee Rubber family, controls the three Malaysian companies through his private vehicle, The Nyalas Rubber Estates Ltd. The three are Kluang Rubber Co (Malaya) Bhd, Kuchai Development Bhd and Sungei Bagan Rubber Co (Malaya) Bhd.

The companies have strong balance sheets, sit on good assets, are cash rich without borrowings and declare dividends regularly, although minority shareholders would frown upon the quantum declared.

“Considering the assets and cash-rich positions of the companies, minorities would certainly hope for the management to embark on corporate exercises to maximise the assets and pay out higher dividends,” says an investment banker.

The group of companies hardly announces any corporate exercises. However, two weeks ago, Sungei Bagan announced an asset swap deal that would effectively see The Nyalas Rubber Estates end up with greater control over Kuchai Development.

Sungei Bagan stated that it had entered into a proposed agreement with The Nyalas Rubber Estates for an asset swap between the two companies that is worth RM32.17 million. There is no cash element to the deal as it is done via the swap of shares.

Under the proposal, Sungei Bagan is to give up its 49% stake in a company that owns four flats in Rome and its 9.44% stake in Kuchai Development to The Nyalas Rubber Estates. In return, Sungei Bagan is to get a property in central London where it already has an existing property.

According to Sungei Bagan’s announcement to Bursa Malaysia two weeks ago, its 49% stake in the flats is valued at some RM4.4 million while the Kuchai Development shares are tagged at RM2.37 each. The price is at a premium of almost 48% to Kuchai Development’s market price of RM1.60 each.

The corporate exercise is subject to the approval of Sungei Bagan shareholders and the regulatory authorities, if required.

An investment banker says if the deal is approved by shareholders, it will mean that Lee, through The Nyalas Rubber Estates, will have a direct 9.44% stake in Kuchai Development and an indirect interest of 42.21% through Kluang Rubber.

“This would effectively increase Lee’s control over Kuchai Development, which holds shares in Great Eastern Holdings Ltd — the jewel in the group,” says the banker.

Apart from valuing Sungei Bagan’s stake in Kuchai Development at a premium to its market price, the proposed transaction would reduce the cross-holdings in the group and pave the way for Sungei Bagan to hold assets in London that are tenanted. In comparison, Sungei Bagan’s flats in Rome are not yielding as they have been vacant.

According to Sungei Bagan, the four units of flats in Rome that are held through its 49%-owned subsidiary, Balland Properties Ltd, have not been tenanted since they were purchased in 1996. The other 51% in Balland Properties is held by Lee through The Nyalas Rubber Estates.

It is not known why the properties have not been tenanted since 1996. The Covid-19 pandemic only broke out early last year. Prior to that, Rome was a hot spot for tourists. In addition, the company says they are located in central Rome within a historical building, which means it is a prime location.

The property in London that The Nyalas Rubber Estates is offering to Sungei Bagan is located at Mayfair, which is also a prime location. The five-bedroom unit has a two-year tenancy, which means there is steady revenue for the company.

In the announcement, Sungei Bagan also stated that the Mayfair property is adjacent to the property that it already owns, within the same building in London.

Nevertheless, a long-time shareholder of Sungei Bagan who declines to be named wonders why the company is not using its cash to buy the property in Mayfair.

“Sungei Bagan sits on cash of RM124.1 million and has liquid investments of more than RM135 million, which includes 1.7 million shares in Great Eastern Holdings.  

It can easily afford to buy the apartment in Mayfair from The Nyalas Estates without having to give up its stake in Kuchai.

“Kuchai is the fifth largest shareholder in Great Eastern while Sungei Bagan itself owns 1.7 million shares in the insurance company and is the seventh largest shareholder,” says the shareholder.

Lee, through The Nyalas Rubber Estates, controls Kluang Rubber, which in turn is a substantial shareholder of Sungei Bagan and Kuchai Development. Sungei Bagan and Kuchai Development have cross-holdings (see chart).

The main operations of Kluang Rubber and Sungei Bagan are oil palm plantations. Sungei Bagan has 4,928 acres while Kluang Rubber has 1,574 acres. In addition, both companies enjoy interest and dividend incomes from their cash holdings and investment in the equities market, bonds and properties.

Kuchai Development’s revenues are primarily from its income in the form of dividends, rental and interest payments. The jewel in its crown is the 3.03 million shares it owns in Great Eastern Holdings, the biggest insurance company in the region, with a market capitalisation of S$10.76 billion (RM33.36 billion). Kuchai Development’s dividend income from investments is some RM5.5 million per annum and the bulk is from Great Eastern.

Kuchai Development’s 3.03 million shares at S$22.75 per share are worth about S$68.9 million, more than Kuchai Development’s market cap of RM198 million. Sungei Bagan, meanwhile, has 1.733 million Great Eastern shares that are worth about RM122 million.

The asset swap proposal will have to go through the shareholders of Sungei Bagan in an extraordinary general meeting. The single largest shareholder in Sungei Bagan is Kluang Rubber with 32.21%; Kuchai Development is the second largest with 26.51%.

Both these companies are indirectly controlled by Lee through The Nyalas Rubber Estates. As they are interested parties, the deal will be decided entirely by the minority shareholders of Sungei Bagan.