Mohd Farhaan Shah and Risen Jayaseelan tell us about an impending debt at Johor Corp in the online STAR today. I have taken the liberty to abridge it accordingly to be brief.
Are there really viable options? Will Johor Corp bite the bullet?
New CEO of Johor Corp (JCorp), Kamaruzzaman Kassim said that the Corporation will not be selling any of its assets to repay bondholders' RM3.6bil when the papers are due on July 31, 2012. That route is now out of the question,so it seems.
This is suppose to put a market dampener on speculation that key assets in the JCorp group, such as QSR Brands Bhd (that owns KFC Holdings (M) Bhd) and London-listed New Britain Palm Oil Ltd (NBPO), will be up for sale at any time soon.
Kamaruzzaman, named JCorp CEO last week confirmed that JCorp had appointed CIMB Bank and Maybank Investment Bhd as advisors.
Kamaruzzaman said that both these banks were the biggest lenders to JCorp. This means that both banks may own the bulk of the RM3.6bil bonds that are due in 2012. [Does it not remind you of the EPF-RHB thingy?]
The financial advisers apparently have suggested some ideas including the issuance of new bonds. [Expecting some form of haircut here?]
The CEO has explained that the RM3.6bil debt was due to JCorp's aggressive investment since 2000, mainly in landed property and industrial areas.
JCorp has been in the news in recent weeks after it rejected two bids to take over QSR Brands Bhd. One was by a company linked to tycoon Tan Sri Halim Saad and another by the Carlyle Group.
While JCorp has a number of prized assets in the group, it doesn't own most of these assets directly. JCorp owns 53% of Kulim, which owns 50% of NBPO and 57.5% of QSR. QSR then owns 50.6% of KFC.
So if these assets were to be sold, the sale proceeds would be trapped at Kulim.
What that means is that if the money Kulim got from the sale of NBPO or QSR were to be paid out in dividends, JCorp would only get half of that, with Kulim's other shareholders enjoying the proceeds as well.
This is likely the main reason for JCorp opting not to divest its assets to repay the loan. When JCorp-controlled Kulim rejected the two bids, it said that it believed more value could be realised in QSR and KFC in the long run.
According to JCorp's 2009 annual report, it had RM705mil in cash but a whopping RM6.62bil in debt and with hardly any free cash flow.
It also paid around RM500mil in interest payments and RM1.7bil in loan repayments. Despite being perceived as asset rich, it only booked a paltry RM5mil in dividend receipts in financial year 2009.
So, it would be interesting for QSR and KFC shareholders what JCorp will do come 2012 when the bonds are due for payment. Will they be paying out bumper dividends at QSR and KFC so that JCorp can survive a cash crunch? Good question.
JCorp is one of the country's largest state economic development authorities and has around 250 companies.
Rollover, Rover?
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