KUALA LUMPUR: The demerger of CCM Duopharma Biotech Bhd from Chemical Company of Malaysia Bhd (CCM) and the degearing exercise at CCM’s level will enable CCM to focus on growing its chemical products and polymer coatings businesses, which contributed 48% of revenue in 2016.
Apart from the announcement made on Wednesday, CCM group managing director Leonard Ariff Abdul Shatar said yesterday CCM will embark on a divestment exercise of non-core assets that provide neither rental nor dividend, to raise an estimated RM225 million which will go towards paring its debts. The disposal of 70.9 acres of land in Shah Alam for RM190 million which was announced, is part of this exercise.
A proposed private placement which is expected to raise RM67.6 million, along with the RM225 million, is expected to reduce its debts to RM100 million from RM440 million currently. This will reduce its gearing from 0.7 times to 0.6 times. The debts comprise RM400 million of long-term loans and RM40 million of working capital credit.
Currently, CCM spends RM21 million a year in interest to service the debt. Post degearing, the amount will be reduced to RM5.25 million a year.
The demerger and degearing exercises are part of a strategic review which began in 2015. Recall that the group merged all pharmaceutical businesses under the CCM Duopharma umbrella in 2015 and exited the fertiliser business in 2016. CCM Duopharma will continue to focus on the pharmaceuticals business.
“Our efforts since 2015 are to fix the core of the company and in 2016 it was to fix the P&L (profit and loss). This exercise is to fix our balance sheet,” said Leonard Ariff.
The demerger exercise, which will be done via a proposed distribution in specie, will result in two separate listed entities as CCM Duopharma ceases to be a subsidiary of CCM.
Leonard Ariff said the demerger, together with the degearing, will lighten the balance sheet for CCM and give shareholders direct ownership in both entities, enabling them to participate directly in their growth.
“It is expected that the restructuring will enable us to utilise our resources more effectively and efficiently, and promote strong growth for our chemicals and polymers businesses,” he told reporters at a briefing.
After the distribution and capital reduction, CCM shareholders are expected to receive dividend in the form of CCM Duopharma shares worth some RM400 million by year-end, enabling them to directly participate in the equity of CCM Duopharma at no cost. Details of the dividend in specie have not been released.
Post-demerger, Permodalan Nasional Bhd (PNB) will remain a major shareholder in both CCM and CCM Duopharma.
“Because of the dividend in specie and the fact that they have 70% in CCM, their combined share based on what they already have plus the dividend in specie, they will then have just over 50% of CCMD (CCM Duopharma).
“The free float now is about 26%. CCMD will be a subsidiary of PNB and PNB’s shareholding will be about 51%. That is assuming they don’t participate in the private placement. If they do, it will be higher. The free float will go up to at least 40%,” Leonard Ariff said.
He said it will be business as usual for both entities post-demerger and the management structure will largely be retained. However, at group level, there will be an exercise to reduce costs.
“Now we are only supporting chemicals and polymers. So the group side would consequently have to shrink as well. We are still working on the details but obviously some of the services will have to be redeployed to pharmaceuticals,” he said.
Asked whether he will remain CEO of CCM Duopharma, Leonard Ariff said no decision has been made yet.
Two EGMs will be convened, in October and December, for the proposed private placement and proposed demerger respectively.
Source: The Sun Daily