Wilmar completes placement to boost free-float after reverse takeover

The Indonesian-based palm oil producer prices shares close to top end of the price range after playing into investor demand for alternative energy assets.
Integrated palm oil producer and refiner Wilmar International has raised S$300 million ($190 million) from a share placement which was needed to comply with the 12% minimum free-float and investor spread requirements.

The company, which obtained a Singapore listing early last month after a reverse takeover of small-scale healthcare provider Ezyhealth Asia Pacific, on Monday (July 31) priced its shares slightly below the top of the range at S$0.80 apiece to reflect some price sensitivity in the book and the still volatile secondary markets.

That said, the offer attracted a lot of attention from investors because of the companyÆs strong position throughout the palm oil value chain, from plantations to various end products like cooking oil and fertilisers. The companyÆs links to Malaysian billionaire Robert Kuok û his nephew Kuok Khoon Hong is CEO and chairman of the new listed unit and one of the Wilmar groupÆs two founders û also helped convince international investors to at least take a closer look at the deal.

ôThe Kuok name carries a lot of weight, but the business model is also very unique with no other company in Asia doing exactly the same thing, especially not on the same scale,ö says one observer, who also notes that the company has been profitable every year since it was set up in 1991.

The fact that the management took the roadshow as an opportunity to outline the companyÆs plans to move into bio-diesel production also played well into the current demand for alternative energy and fuel sources and it likely didnÆt hurt that crude oil prices reached new record highs on July 14, just before the start of the roadshow.

The company has begun construction of its first bio diesel plant in Riau in Indonesia, which will have a capacity to produce 250,000 metric tonnes of bio diesel per year when it is completed in March 2007. And while investors may not have bought into a greenfield bio energy business on its own, this investment does provide a bit of ôa kickerö to the groupÆs already substantial edible oils operations, the observer notes.

The latter business is tapping into the growing consumption of edible oils in China and India as well as other emerging markets as populations become wealthier. An expected increase in oil palm cultivation in Indonesia (where land is cheaper than in Malaysia, which has traditionally housed most of the regionÆs oil palm plantations) should also result in a need for more palm oil mills and refineries which Wilmar can provide.

According to a market source, the share offer was six times covered at the bottom of the S$0.62 to S$0.85 price range and three times at the top. The amount of orders almost doubled on the final day of bookbuilding last Friday, which suggests price movements in the secondary market do play a big role still for investorsÆ desire to commit money. At the final price the demand exceeded the 375 million shares on offer by approximately five times.

The bulk of the demand came from Asia-based investors, although European accounts were said to have taken about a quarter of the stock. The offer, which was jointly led by CIMB GK Securities, DBS and OCBC, wasnÆt marketed to onshore US investors.

The demand allowed existing shareholders to sell the maximum 75 million shares they were hoping of offload, while the company itself sold 300 million new shares. The combined share offer accounted for about 15% of the post-issue share capital and will increase the free-float to about 83.8% from 98.8%.

The free-float became constrained after the Wilmar group injected its palm oil assets into the listed company in return for S$1.29 billion worth of new Ezyhealth shares. The transaction was announced in December 2005, but approved by EzyhealthÆs shareholders early last month. As a result of the reverse takeover, Ezyhealth will sell its healthcare business to a company controlled by its CEO and will also change names to Wilmar International.

The final price values the shares at roughly 13.5 times projected 2006 earnings, based on consensus estimates, which according to one observer is ônot real cheap.ö One syndicate analyst projects the net profit will increase by 14% to $65.9 million in this year, which implies an even richer PE multiple of about 19 times. However, there are no other companies in the region with the same breadth of operations as Wilmar, which means there are no real comparisons.

According to syndicate research, Malaysian palm oil producers trade at an average of 17.6 times 2006 earnings, while the companyÆs Indonesia-based peers fetch a slightly lower PE multiple of 12.4 times forward earnings. The offer price did however equal a 27% discount to the S$1.10 where WilmarÆs shares were last traded before being suspended on July 20 pending the outcome of the share sale, making the offer look attractive in that respect.

The shares are scheduled to resume trading on August 8.

Wilmar owns or administers a total of 107,319 hectares of oil palm plantations in Indonesia and also owns and operates 62 milling, crushing, refining, processing and packaging plants in Indonesia and three in Malaysia, making it one of the largest integrated agribusiness groups in Asia. It derives about 90% of its revenues from the merchandising and refinery business, while the rest comes from its plantations and palm oil mills and other operations such as fertilisers and income from ship charter.

The company owns and operates its own fleet of seven liquid bulk vessels as well as its own ports and jetties, which give it an edge over other palm oil producers as it can quickly redirect its transports in response to shifts in demand between different regions.

At present, Wilmar sells its products to customers in more than 30 countries around the world, including China, India and Indonesia as well as North and South America, Europe, Africa and the Middle East. It counts multinationals like Procter & Gamble, Cargill, Unilever, Nestle and Asia-based China Grains and Oil Group and China National Vegetable Oil Corp as its customers.

Aside from its expansion into bio-energy, Wilmar is planning to increase its processing capacity in Indonesia through the construction of three palm oil refinery and fractation plants, seven palm kernel crushing plants, four palm oil mills and one fertiliser plant. It is also looking to expand its plantation area through both greenfield projects and acquisitions and has identified suitable land in Sumatra and Kalimantan for such developments.
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