KUCHING: Borneo Oil Bhd (BOB) will acquire additional 22.49 per cent equity interest in Makin Teguh Sdn Bhd (MTSB), which owns an integrated clinker and cement plant in Sabah, for about RM73.6 million.
BOB has entered into a sale of shares agreement (SSA) with MT 23 Resources Ltd (vendor) for the purchase of about 28.36 million ordinary shares (22.49 per cent). MTSB is the legal and beneficial owner of 28.78 per cent of the equity in MTSB represented by about 36.28 million shares of the issued and paid-up capital of the firm.
“The purchase consideration will be satisfied by way of treasury shares transfer and cash from internally generated funds. The proposed acquisition is expected to be completed within twelve months (from May 17, 2022) taking into consideration the agreed time frame for the full payment of the purchase consideration,” BOB said in a filing with Bursa Malaysia.
MTSB is in the business of manufacturing and trading of clinker, cement and related products, with a paid-up capital of RM167.25 million. The company’s integrated clinker and cement plant (ILPP) is located in Lahad Datu.
With the additional acquisition of 22.49 per cent stake, BOB’s equity interest in MTSB will increase to 38 per cent. BOB had earlier acquired about 19.55 million ordinary shares in MTSB.
BOB said the basis and justification of arriving at the purchase considering of RM73.6 million was on a “willing-buyer willing-seller” basis after taking into consideration, amongst others, the following:
- The valuation of MTSB is valued at RM263 million as per the independent fair valuation report dated March 23, 2022 by Asia Equity Research Sdn Bhd (AER), a company licensed by Securities Commission Malaysia to provide advisory in corporate finance and investment advice;
- AER assessed the fair value of the entire equity interest in MTSB using free cash flow to firm (FCFF) approach to value the projected net cash flow streams from the cement clinker plant based on an annual production capacity of 223,000 tonnes for the next 20 years from July 1, 2022 until June 30, 2042;
- The weighted average cost of capital (WACC) of 11.6 per cent was used on the discounted cash flow for the computation of the FCFF approach;
- The net tangible assets of MTSB are in the sum of about RM195.3 million as per the audited report for financial year ended June 30, 2021;
On the rationale and benefits of the proposed acquisition, BOB said the company is the largest private owner of limestones reserves of cement grade quality in Sabah and has heavily invested in this resource.
“The ILPP has the capacity to produce 720mt/day or 223,000 mt/annum of Portland grade cement. The ILPP is the first integrated clinker and cement plant in Malaysia utilising green technology comprising heat recovery and a multi-fuel system that is able to utilise a mixture of heavy fuel oil and biomass mixed fuel. This system is able to use palm kernel shells and other biomass and waste to generate heat. The overall system utilises rainwater and recycled water to reduce the overall plant carbon footprint. There is no other similar plant in Malaysia.
“The ILPP is situated adjacent to the limestone quarry land owned by BOB group of companies. MTSB has entered into a long-term supply contract for limestone with BOB’s subsidiaries on the current stockpile and overburdened waste from existing quarrying operations to supplement the ILPP’s initial limestone feedstock requirements. This supply of current stockpile and recovery waste for down streaming activity is also in line with BOB group’s initiative towards zero waste and reusing/upcycling all materials. This synergetic alliance will enable MTSB and BOB to pool their combined limestone resources and position BOB group for future expansion.
“The acquisition presents an opportunity for the BOB group to move downstream its quarrying resources to boost the profits further. This is synergy between the BOB group’s existing limestone quarrying business and MTSB’s clinker and cement plant,” added BOB.
According to BOB, the outlook for Sabah’s clinker and cement industry is favourable given the high cement prices in Sabah compared with the rest of Malaysia and ILPP’s proximity to BIMP-EAGA. The company said the already high price of cement in Sabah has been made worse in recent months due to the drastic increase in logistics costs and fluctuation in foreign exchange rates.
“There are 11 integrated clinker and cement plants in Malaysia (9 in West Malaysia and 2 in Sarawak). In contrast, there is none in Sabah.
The COVID closures in 2020 and 2021 have created an unprecedented urgency for Sabah to become more self-reliant in various sectors of economic importance, including food and construction materials. Cement is one such commodity that is essential to development. Sabah can no longer afford to rely on 100 per cent imported clinker and cement. Therefore, the emergence of the ILPP in Sabah is timely.
“Sabah has an annual demand of 1.2 million to 1.4 million metric tons of cement per year. This does not include the future development projects planned on the east coast of Sabah and the demand in BIMP-EAGA region with close proximity to the east coast of Sabah,” said BOB.
