cecilia_kok@thestar.com.my
PETALING JAYA: For those still craving for a bite of its “finger lickin’ good” business in Malaysia, Johor Corp (JCorp) has this to say: “QSR Brands Bhd and KFC Holdings (M) Bhd are not for sale.”
Any speculation of its intention to sell those prized assets must have to be mooted by people with “malicious intent”, JCorp’s newly appointed president and chief executive officer Kamaruzzaman Abu Kassim said in a statement issued on Monday to quash rumours that the state investment arm was planning to sell QSR and KFC to finance its debt.
JCorp is the ultimate shareholder of the lucrative fast-food businesses of QSR and KFC. Its interests in both the companies are held through its 53%-owned subsidiary Kulim (M) Bhd, whose main business is in the plantation sector. Kulim owns a 57.5% stake in QSR, which in turn, owns a 50.6% stake in KFC.
As one of the country’s largest state economic development authorities, JCorp at present boasts about 250 companies in its stable. Besides those embroiled in the recent takeover rumours, the company’s other key assets also include private healthcare service provider KPJ Healthcare Bhd; property development companies Johor Land Bhd and Damansara Realty Bhd; intrapreneur venture business Sindora Bhd; as well as the London-listed plantation company, New Britain Palm Oil Ltd (NBPO). (Kulim owns about 50% of NBPO)
Market observers say that while JCorp’s recent clarification has managed to quell speculation of QSR and KFC sale, it has not entirely rule out the possibility of JCorp needing to dispose of some of its other key assets to pare down its mountain of debt.
According to JCorp’s latest annual report, its total debt as at Dec 31, 2009, stood at a whopping amount of RM6.62bil. Of that, RM3.6bil is due for repayment in July 2012.
“It remains to be seen if JCorp could afford to resolve this huge amount of debt without having to embark on some asset sales,” an analyst says.
Kamaruzzaman in a recent note has maintained that JCorp’s debt obligations remain manageable for the company, and that CIMB Bank Bhd and Malayan Banking Bhd, which own the bulk of the company’s soon-to-expire debt, have been appointed as its financial advisers.
He has also earlier informed the press that JCorp already has in place a debt-restructuring plan, details of which will be revealed next year. It is understood that refinancing could be an option that the company is going for, as the route will not necessarily result in the need to sell out any of JCorp’s assets. This is important to maintain the company’s strategic interests.
But analysts point out that in order to qualify for the option, JCorp still has to prove that it has a compelling cash flow story to tell the bankers. But as it stands, analysts say, this is the very element that JCorp lacks.
The company’s annual report, for one, revealed that JCorp only had RM705mil in cash as at the end of last year. On top of that, it had to fork out around RM500mil as interest payments to service its loan and RM1.7bil as loan repayments.
“Creditors are inclined to see at least a partial repayment of a huge debt as proof of the company’s commitment to settle its loan,” an analyst says.
“In that sense, it’s going to be a challenge for JCorp to find ways to prove its cash flow position and commitment in repaying its debts based on its prevailing balance sheet,” he adds.
While JCorp is asset rich, considering its total assets worth of more than RM14bil as at the end of last year, the company only managed to book a paltry RM5mil in dividend receipts during the financial year of 2009.
This problem is due to JCorp’s structure of the ownership of its assets: the company does not own most of its prized assets directly. To put that into perspective, any dividend declared at the KFC and QSR levels, for instance, tend to get “trapped” at Kulim’s level. JCorp will only get to enjoy a portion of the money declared at the KFC and QSR levels.
In any case, it is argued that JCorp has other assets that can be sold. One is its direct stake of 48.35% of KPJ Healthcare Bhd, with Khazanah Nasional Bhd being the likely buyer. The other is the NBPO, which it owns through Kulim’s holding of a 50% stake in the company.
One thing for sure, some punters will still speculate on the potential sale of JCorp’s other assets until the company unveil the details of its debt-restructuring plan.