DRB-Hicom sells cash cow Alam Flora to pare debts, finance Proton operations

PETALING JAYA: DRB Hicom Bhd is selling profitable Alam Flora Sdn Bhd to Malakoff Corp Bhd's dormant unit Tunas Pancar Sdn Bhd for RM944.6 million to pay off loans and finance loss-making Proton Holdings Bhd's operations.
Alam Flora holds a 22-year concession for solid waste collection and public cleansing management awarded by the Malaysian government, which runs through Sept 1, 2011 until Sept 1, 2033.
The deal comes with a commitment from DRB-Hicom to cover a shortfall of up to RM140 million, over a two-year period, in the profit before tax of Alam Flora, should there be any tariff reduction in the concession agreement within 24 months of the sale to Tunas Pancar.
Tan Sri Syed Mokhtar Al-Bukhary holds a direct interest in DRB-Hicom and an indirect interest in Malakoff.
In a filing with Bursa Malaysia today, DRB-Hicom said for the financial year ended March 31, 2018, the Alam Flora group contributed RM813 million or 6.4% of DRB-Hicom group revenue and 19.4% or RM99.4 million to profit after tax. The proposed disposal will give rise to a net gain of RM735.4 million.
DRB-Hicom intends to use RM500 million to pay off Islamic medium-term notes and term loans which will not result in interest savings for the group, while the remaining RM44.60 million will be for Proton's development costs for new models as well as any future investment opportunities to be identified.
As at March 31, 2018, the borrowings of DRB-Hicom Group totalled RM5.78 billion.
"There can be no assurance that the use of part of the proceeds for these investment purposes will generate sufficient returns to offset the loss in income stream following the completion of the proposed disposal," DRB-Hicom said.