PETALING JAYA: Seven years after Sime Darby Bhd went through a mega-merger of all plantation companies under the Permodalan Nasional Bhd group, the group is now looking to unlock the value of its assets which is close to RM3bil.
Two weeks ago, Sime Darby did not discount the possibility of acquiring a real estate investment trust and its management company in a move that was seen as unlocking some RM1.4bil in its property division.
The company has disclosed that a listing of its automotive arm is an option it is considering to enhance shareholder value, and it has been reported that Sime Darby had invited investment banks to make a pitch for its listing.
Analysts have estimated Sime Darby to raise some US$500mil (RM1.6bil) from the listing of its automotive arm, which is expected to take place by year-end.
Some feel that Sime Darby’s divisions are ripe for listing because they have matured, while there are other views that a listing would only be beneficial if it did not impact the valuation of the parent company.
AmResearch analyst Thomas Soon said the listing of its divisions made sense because the businesses had grown over time and it had attained economies of scale.
“It makes sense because the businesses have grown. It is a good time to spin off the individual businesses,” said Soon.
“As a spin-off, Sime Darby would actually unlock value rather than lose value. Previously, the businesses were not so integrated, but now, there is a clear distinction in its businesses,” he said.
He sees Sime Darby becoming a pure plantation company in the future.
However, UOB KayHian research head Vincent Khoo said Sime Darby needed to carefully study the potential exercise from a valuation perspective. Breaking its businesses up would not result in operating value creation, he said.
“From a valuation perspective, it might be better to keep the businesses under the conglomerate umbrella. This is because once they have broken away, they might lose their premium from potentially not being included in the index,” he said.
Additionally, he noted that trading businesses on their own tended not to fetch high valuations. “They tend to be not particularly expensive,” he said.
Sime Darby’s automotive business is seen as largely being driven by trading activities because of its position as a distributor of several marques.
The breaking up of Sime Darby is not an entirely new notion. In August last year, the company had indicated that the group could consider possibly listing its key divisions when the time was ripe.
Even under the previous president and group chief executive officer Datuk Seri Ahmad Zubir Murshid, there were plans to list its automotive and plantation businesses.
Ahmad Zubir had explored listing the Hong Kong and China motor operations on the Hong Kong Stock Exchange and the Indonesian plantations on the Jakarta Stock Exchange.
The pressure to list came about as pressure mounted on Sime Darby due to it being a laggard after concluding the biggest merger in Malaysian corporate history involving eight listed companies.
The eight companies were Sime Darby, Sime Engineering Services Bhd, Sime UEP Properties Bhd, Golden Hope Plantations Bhd, Mentakab Rubber Co (Malaya) Bhd, Kumpulan Guthrie Bhd, Guthrie Ropel Bhd and Highlands & Lowlands Bhd.
The merger was valued at RM30bil when it was initiated in December 2006. Upon completion and relisting, it was requoted at close to RM60bil.
But since then, Sime Darby has not performed up to expectations, with the expected savings derived from the merger being offset by losses from its oil and gas (O&G) arm that amounted to RM2.1bil in the financial year ended June 30, 2010.
The losses from the O&G arm resulted in Sime Darby being in the limelight for all the wrong reasons, and eventually saw the company taking civil suits against Ahmad Zubir and four other executives. The cases are still pending.
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