Finally, a solution for JCorp

AT long last, a solution seems to have surfaced to address Johor Corp's (JCorp) debt woes. But there are still questions on whether this is the best option for the asset-rich but cash-strapped JCorp whose total debt as at the end of 2009 stood at RM6.62bil with only RM705mil in cash reserves.


Kulim (M) Bhd yesterday signed several sales and purchase agreements with its parent JCorp to acquire over 33,800 acres of estate land in Johor for RM700mil cash.

In another announcement, Kulim said it was offering RM3 cash per share for the 21.6 million shares or 22.5% of Sindora Bhd that it did not already own.

Sindora's shares were last traded at RM2.65. Trading on Sindora and Kulim counters was suspended from 2.30pm on Monday until yesterday.

JCorp has a 53% stake in Kulim, a plantation firm with a 50% stake in London-listed New Britain Palm Oil Ltd, 77.5% stake in Sindora and 57.8% of QSR Brands Bhd, which in turn owns a 51.2% stake in KFC Holdings (M) Bhd.

Other listed entities in which JCorp has substantial stakes include a 42% stake in KPJ Healthcare Bhd and 55.1% stake in Damansara Realty Bhd besides wide-ranging interests in over 200 companies.

For JCorp, this could be the beginning of a restructuring of the state investment corporation's debt, of which RM3.6bil falls due end July 2012. It is this tranche of debt that is most worrying, given JCorp's financial status. While there is the option to refinance the debt, its lenders CIMB Bank Bhd and Malayan Banking Bhd could insist that the debtor cough up money to partly repay the oustanding debt.

After rebuffing three bids for Kulim's QSR stake last December, which could have beefed up its cash reserves, many wondered how JCorp would finance its massive pile of debt. This was despite the reassurance by JCorp's then newly appointed president-cum-chief executive officer Kamaruzzaman Abu Kassim that the group was committed to completing a corporate restructuring programme by 2012.

In February, he had said that JCorp would sell land located in Johor Baru worth over RM2bil earmarked for development under the RM1.8bil city centre transformation plan as part payment for the RM3.6bil debt. Kamaruzzaman added that there were also plans to sell about 1,000 acres out of nearly 8,000 acres in Kota Tinggi to the state government for Petroliam Nasional Bhd's development of an oil and gas hub in Pengerang.

All these plans came to naught. Then in April, banking sources said a new investment committee made up of five members of JCorp's board and headed by its chairman Johor Mentri Besar Datuk Abdul Ghani Othman had been appointed.

The sale of the plantation land by JCorp to Kulim, although bringing in a good sum of money to the former, raises the question of whether the state investment corporation could have gotten more from the land if it had been tendered out to the highest bidder.

The deal is also a related party transaction, a factor which the group has often been criticised for in the past.

However, in this instance, the cash goes up to JCorp level instead of among the group's listed companies, where JCorp would have seen little benefit.

This, of course, goes back to the group's complicated shareholding structure, which observers said were due to legacy issues created by the past management.

In a statement issued yesterday, Abdul Ghani said the two exercises marked the start of the group's restructuring exercise and were in line with the strategic recommendation of the investment committee to streamline JCorp's businesses and assets into distinct business units.

“I strongly believe the rationalisation of JCorp's and Sindora's plantation landbank under Kulim will reinforce Kulim's position as a significant player in the palm oil industry, and a main contributor within JCorp's stable of companies,” he said.

Abdul Ghani said the debts of JCorp would also be addressed as part of this restructuring.

“The group will review and restructure its debt position to ensure that all core businesses are adequately funded and our debt capital is efficiently employed. Specific initiatives will be announced in due course,” he added.