Boustead assets sale a positive step forward

Boustead assets sale a positive step forward – Analysts
by Ronnie Teo ronnieteo@theborneopost.com. Posted on November 13, 2010, Saturday

KUCHING: Boustead Holdings Bhd’s (Boustead) proposed sale and leaseback agreement with Al-Hadharah Boustead Real Estate Investment Trust (AHBREIT) for its plantation assets was seen as a positive step forward by analysts.

PROFIT SHARING AGREEMENT: Ching says the variable rental payment will be based on a CPO price reference and there will be a profit-share agreement between Boustead and AHBREIT for any price of CPO sold above the reference price.

Hong Leong Investment Bank Bhd’s (HL Research) analyst noted that the proposed sale and leaseback of Sutera Estate in Sandakan and Taiping Rubber Plantation to AHBREIT was for a cash consideration of RM189.2 million.

“We view this positively due to interest savings and the reduction in gearing for Boustead,” he said.

According to ECM Libra Capital Sdn Bhd’s (ECM Libra) head analyst Bernard Ching, Boustead would profit by RM97.7 million in net gains from this venture along with an estimated interest savings of RM9.5 million for the financial year 2011 as reported by the group.

“The 3,580 hectare going into AHBREIT will still be captured by the group under its total hectarage calculation because it still gets to participate in the profits of the estates,” Ching pointed out. “As part of the leaseback agreement, Boustead will pay AHBREIT a fixed rental payment and also a variable rental payment.

“The variable rental payment will be based on a crude palm oil (CPO) price reference and there will be a profit-share agreement between Boustead and AHBREIT for any price of CPO sold above the reference price.”

Ching noted that the along with this new agreement, a new reference price and rental rates would be determined and known by next year.

“The agreement is as such that it has neutral impact to Boustead’s earnings, even in times like these when CPO prices are high.

“After all, Boustead’s 100 per cent owned subsidiary, Boustead Plantations Bhd does have a 60 per cent stake in AHBREIT and earns distributions and profit shares from the REIT,” he concluded.

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