KFC

JCorp has rm3.6 billion debt that it needs to pay in 2012. To do this, the Johor states owned entity may need to dispose of some of assets.

The company is currently reviewing and evaluating various options to resolve its debt problem. JCorp has appointed a financial adviser for its proposed group restructuring exercise mainly to address its financial obligation of RM3.6 billion due in July 2012.

LTH holds 22.8% stake in KFC and EPF holds 5% stake in QSR and about 6% in Kulim. It ahs about 8% stake in KPJ Healthcare.

It remains to be seen with a new captain at JCorp’s helm, these counters will attract more institutional investors.

What is for certain is that interest is growing in KFCH.

For now it appears that JCorp has the right assets in the food business. The plantation and quick service restaurant segments remain JCorp’s largest revenue contributors as both businesses are resilient.

However, JCorp must gears down to be able to undertake any corporate exercise in the near future. The debt it incurred during the 1997/1998 Asian financial crisis is still hanging over the group.

Kulim has been selling its assets to raise funds to help lower its gearing.

It will not come as a surprise if other assets in JCorp, including KFC were to come up for sales as they can easily monetized. But at what kind of premium? It will be costly for any partly to but KFCH now (Nov 2010).

Apart from disposal of assets, there is speculation of a possible bumper dividend from Kulim so that more cash can flow into JCorp to help part finance its needs.

Meanwhile KFC Holdings Bhd’s (KFCH) top official has brushed off talk that the firm is a target of takeover by a substantial shareholder.

QSR owns a direct 28.8% stake in KFCH. Kulim Malaysia Bhd owns 55% of QSR. Kulim is a subsidiary of Johor Corp, which has a 52.4% stake in the diversified group.

Meanwhile rumours about KFCH being a “potential privatisation” target would continue to support its share price.

With KFC going big in India, expecting to absorb a lot of KFC’s financial resources over the next few years. This has forced Jcorp and QSR, to think of its position in the companies in the long term.

Moving forward, the expansion in India will take up much resources, which means KFC may not be able to give out attractive dividends The other option if for Jcorp to sell the company to the highest bidder.

Jcorp’s investments in KFC via QSR amounts to some RM300 million. A sale should easily net the company proceeds of more than Rm1 billion, which would come in handy for Jcorp which has some Rm3 billion in debt obligations to meet in 2012.

There is no shortage of suitors for KFC. There are offers from government linked organizations, businessmen, private equity funds and even the royals.

Sources say at least one royal has expressed interest in KFC but whose proposal is meeting resistance. A Singapore based private equity firm and a local counterpart, believed to be Ekuiti Nasional Bhd, were believed to be looking at KFC and QSR. However, the offer was said to be a tad too.

An improved offer has not landed on the table. It is believed to be from parties linked to Tan Sri Halim Saad. But the current share prices (Nov 2010) of KFC and QSR are seen as a stumbling block.

The interested parties aligned to Halim in KFC would be less controversial than Asas Serbas’s bid for PLUS. This is because KFC is not regulated by the government and is entirely commercially driven.

Apart from it not being regulated by the government, there is another compelling reason why KFC is an attractive stock. It generates healthy cash flow through its chain of restaurants.

The question is, will its existing operating cash flow be sufficient to finance a buyout of the business? An industry says the deal will not attract suitors as the cash flow from KFC and QSR cannot finance it and current valuations are too high.

Any change in shareholding in KFC will have to come with descent pricing – and a gentle nudge from the Johor government. This effectively means that apart from financial strength, political ties will play a key role in changes at KFC.


P&O

Pacific & Orient Bhd has called off the preliminary negotiations for the proposed divestment of an equity interest in Pacific & Orient Insurance Co. Bhd to Prudential Holdings Ltd. It had informed Bank Negara Malaysia the proposed divestment discussions had been discontinued.

On Aug 11, P&O announced it had received the central bank’s approval to begin preliminary negotiations for the proposed divestment of an equity interest in the insurer to Prudential Holdings.