Wilmar: Streamlining of shareholding structure

Previous Day Closing price: $2.95
Recommendation: Outperform (maintained)
Target price: $3.25 (maintained)

In an EGM on 3 Feb 09, the shareholders of Wilmar Holdings Pte Ltd (WHPL), a 48.2% shareholder of Wilmar International Ltd (Wilmar), approved a proposal to voluntarily liquidate WHPL. As a result, the shares of Wilmar held by the company will be distributed in specie to the shareholders of WHPL, one of whom is Wilmar International Holdings Ltd (WIHL), which owns 91.3% of WHPL.

WIHL will also be put into voluntary liquidation, following which its assets will be distributed in specie such that the shares that will be distributed to WIHL, pursuant to the liquidation of WHPL and distribution in specie to WIHL shareholders. The liquidation process for both companies is subject to the usual clearances and may take up to 18 months to complete. An interim distribution in specie of Wilmar may take place pending final liquidation. This exercise will help streamline the shareholding structure of Wilmar and improve the free float of the company.

We are not too surprised by this move as both the holding companies no longer serve their purpose following the injection of related-party assets into Wilmar. To recap, WHPL was previously the vehicle holding related-party assets, which have since been injected into Wilmar under a merger and restructuring exercise completed in Jun 07. We gather that the above streamlining exercise is not due to the major shareholders of WIHL wanting to sell down their stakes in Wilmar. So far, there has been no indication by any major shareholder of any intention to reduce stakes in the company. We expect ADM to remain a major shareholder as Wilmar offers exposure to the oilseeds and edible oils business in Asia.

Following the liquidation process, the ultimate and intermediate substantial shareholders will hold Wilmar shares directly instead of through WIHL and WHPL. Post-liquidation, the Kuok Group will overtake WHPL as the largest shareholder of Wilmar with a 31.2% stake, followed by ADM with a 16.1% stake. Mr Kuok Khoon Hong, chairman and CEO and Mr Martua Sitorus, COO and Executive Director will have direct 12.33% and 10.46% stakes in Wilmar, respectively. COFCO will end up as the fifth largest shareholder with a 5% stake.

The exercise will help to improve the free float of the company from 13.7% to 24.1%. This is positive, as it could help Wilmar improve its weighting in the MSCI or FSSTI and improve its trading liquidity.

We believe the streamlining exercise does not necessarily signal plans by the major shareholders to pare down their stakes in Wilmar, resulting in share overhangs. Rather, we see this move as a necessary step as the holding companies no longer serve the purpose of holding assets which have been injected into Wilmar. We believe concerns of a potential short-term share overhang by the market will be offset by potential improvements of the stock’s weighting in the MSCI index. There is no change to our earnings estimates or target price of S$3.25, still based on a forward P/E of 13x.

Source: OCBC, 6 Feb 2009