TIDMPAL
RNS Number : 2019N
Equatorial Palm Oil plc
18 May 2020
18 May 2020
EQUATORIAL PALM OIL plc
("EPO" or the "Company")
Proposed Disposal of 50% interest in LPD and Notice of General
Meeting
Equatorial Palm Oil plc (AIM: PAL), the AIM listed palm oil
development and production company with operations in Liberia, West
Africa, announces the proposed disposal, by its wholly owned
subsidiary Equatorial Biofuels (Guernsey) Limited ("Equatorial
Biofuels"), of the Company's 50 per cent. interest in Liberian Palm
Developments Limited ("LPD") to Kuala Lumpur Kepong Berhad ("KLK")
for nominal consideration (the "Disposal").
Overview of the Proposed Disposal
-- Under the terms of the SPA, on completion of the proposed Disposal:
o Equatorial Biofuels will transfer its 50 per cent. equity
interest in LPD to KLK Agro Plantations Pte Ltd (" KLK Agro
Plantations "), a wholly owned subsidiary of KLK (" Sale Shares
")
o EPO will transfer its circa US$6.2m of outstanding debt owed
to EPO by LPD (" Loan Novation "), which ranks behind LPD's
outstanding loans with KLK of circa US$131m, to KLK Agro
Plantations
o The consideration for the transfer of the Sale Shares and Loan
Novation shall be GBP1
-- The proposed Disposal constitutes a fundamental change of
business of the Company under Rule 15 of the AIM Rules and
accordingly requires shareholder approval. If approved, the Company
would become an AIM Rule 15 cash shell on completion.
-- The proposed Disposal will eliminate any future costs to the
Company associated with its interest in LPD and enable the Board to
seek to acquire another asset which the Board believes is more
likely to generate value for Shareholders in the near to medium
term.
-- On completion, the Company expects to have available cash
resources of approximately GBP800,000, which the Board will utilise
carefully in seeking to identify and execute a potential
acquisition.
Further information regarding the proposed Disposal can be found
below and in a Circular which will shortly be posted to
shareholders and made available on the Company's website at
www.epoil.co.uk (the "Circular").
The proposed Disposal is subject to shareholder approval at
General Meeting of the Company to be held on 9 June 2020 at 11:00
a.m. Notice of the General Meeting and further information
regarding voting and attendance is provided within the
Circular.
Michael Frayne, Executive Chairman of EPO, commented:
"The last few years have proved to be a very difficult time for
the palm oil industry in Liberia, and worldwide, which as
shareholders will be aware has significantly impacted the Group's
ability to develop its palm plantations at the rate we would have
hoped. Indeed, last year we announced that Butaw estate would cease
operations as it was not economically viable to continue.
"Having extensively considered the proposed Disposal, I, and
Geoff Brown, believe that it is in the best interests of
shareholders for EPO now to dispose of its interest in LPD and seek
to utilize its cash reserves, of approximately GBP800,000 expected
on completion of the proposed Disposal, to seek to acquire another
asset which can deliver value generation for shareholders in the
near to medium term."
- -
For further information, please visit www.epoil.co.uk or
contact:
Equatorial Palm Oil plc +44 (0) 20 7268
Michael Frayne (Executive Chairman) 4874
Strand Hanson Limited (Nominated Adviser) +44 (0) 20 7409
James Harris / James Bellman 3494
Mirabaud Securities Limited (Broker) +44 (0) 20 7484
Peter Krens 3510
Additional Information
1. Meeting Arrangements and Expected Timetable
The General Meeting of the Company will be held at 11:00 am on 9
June 2020. The physical meeting will be held at 8th Floor, The
Broadgate Tower, 20 Primrose Street, London EC2A 2EW but please
note the instructions set out in this announcement and the Notice
of General Meeting with respect to the arrangements in place for
this meeting. Unfortunately, due to COVID-19, no Shareholder will
be allowed entry into the physical meeting.
As a result of the ongoing COVID-19 pandemic, and in line with
the Government's Stay at Home Measures, the Board is adopting a
number of changes to the traditional running of the General
Meeting. In order to reduce the risk of infection we are asking
Shareholders to not attend the General Meeting which will end
immediately following the formal business. Any Shareholders who do
attend will not be admitted.
Arrangements will be made by the Company to satisfy the
requirements of a quorum for the General Meeting so that it may
proceed.
ONLY THE CHAIRMAN CAN BE APPOINTED AS A SHAREHOLDER'S PROXY FOR
THIS PARTICULAR MEETING AND IN ADDITION SHAREHOLDERS CANNOT ATT
THIS MEETING IN PERSON.
Shareholders will be able to submit questions ahead of the
General Meeting. Only questions in relation to the Resolution or
business of the General Meeting will be considered for the purposes
of the General Meeting. Shareholders should direct questions to
Ben.Harber@shma.co.uk. Where appropriate and practicable, answers
to these questions will be posted on the Company's website
following the meeting.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Publication of the Circular 18 May 2020
Latest time and date for receipt 11.00 a.m. on 5 June 2020
of Forms of Proxy in respect of
the General Meeting
Time and Date of General Meeting 11.00 a.m. on 9 June 2020
Notes:
Unless otherwise specified, references in this announcement to
time are to London time.
The times and dates above are indicative only. If there is any
change, revised times and/or dates will be notified to Shareholders
by means of an announcement through a Regulatory Information
Service.
2. Business of the General Meeting
This announcement sets out details of the proposed Disposal by
the Company's wholly owned subsidiary, Equatorial Biofuels, of its
50 per cent. equity interest in LPD, the Group's operating
subsidiary, to KLK Agro Plantations, a wholly owned subsidiary of
KLK, for nominal consideration.
The Disposal, if concluded, will constitute a fundamental change
of business of the Company under Rule 15 of the AIM Rules. On
completion of the Disposal, the Company would cease to own, control
or conduct all, or substantially all, of its existing trading
business activities or assets. Accordingly, should the Disposal
complete, the Company would be classified as an AIM Rule 15 cash
shell and, as such, would be required to make an acquisition or
acquisitions which constitute a reverse takeover under AIM Rule 14
(or seek re-admission as an investing company (as defined under the
AIM Rules)), on or before the date falling six months from
completion of the Disposal, failing which, the Company's Ordinary
Shares would be suspended from trading on AIM pursuant to AIM Rule
40. Admission of the Company's Ordinary Shares to trading on AIM
would be cancelled six months from the date of suspension should
the Company not complete such a transaction during this time.
The purpose of this announcement is to set out the background
and reasons for the Proposal, explain why the Independent Directors
believe that it is in the best interest of the Company and
Shareholders as a whole and why the Independent Directors recommend
that Shareholders should vote in favour of the Resolution to be put
to Shareholders at the General Meeting.
3. Background to Proposal
On 29 November 2013, KLK, via KLKI, completed a subscription for
Ordinary Shares which led to the requirement for it to make a
mandatory cash offer to all other Shareholders to acquire the
entire issued and to be issued share capital of the Company. The
offer completed on 23 December 2013 and resulted in KLK holding
223,866,969 Ordinary Shares in the Company, representing 63.2 per
cent. of the Company's then issued share capital. Since the
completion of its offer, the KLK group has loaned circa US$131
million of funding to LPD pursuant to the KLK Loan, and it has
managed the operations of LPD in Liberia, through Taiko Plantations
Sdn. Bhd., a wholly owned subsidiary of KLK.
LPD, through its wholly owned subsidiaries in Liberia, holds
concessions to the Palm Bay and Butaw palm oil estates in Liberia,
West Africa, granted for 50 years, The Palm Bay estate comprises
13,007 hectares of land as part of the concession, as well as
expansion areas totalling 20,234 hectares, of which 50 per cent. is
set aside for out grower programmes. The Butaw estate comprises
8,011 hectares of land as part of the concession, as well as
expansion areas totalling 46,539 hectares, of which 15,680 hectares
is set aside for out grower programmes.
Whilst progress has been made at the Palm Bay estate during the
period of the Company's involvement, including the commissioning of
a palm oil mill and subsequently the first sale of its palm oil
products, together with the completion of a 3,000MT storage tank
facility and the first shipment of CPO produced by the Company from
the port of Buchanan in September 2019, there have unfortunately
been a number of corporate and operational impediments to the
optimal development of the Group's plantation assets. As was
announced in the Company's full year accounts for the year ended 30
September 2019, Butaw was considered to be uneconomic as a
standalone concession and the decision was made by the Board of LPD
to fully impair its value in the accounts for LPD. As a result, the
operations at Butaw have ceased. The Company has also made an
impairment of its investment in its subsidiary, Equatorial
Biofuels, of US$15,842,000, which is now reflected in the full year
results ending 30 September 2019 and which results in reducing the
carrying value of its investment to nil.
LPD is currently loss making, has outstanding debt to KLK of
c.$131m which ranks ahead of the Company's loans to LPD in the
amount of c.$6.2m, and is likely to require further funding going
forward. Consequently, it is highly unlikely that the Company's
loans to LPD will be recoverable. Accordingly, the Independent
Directors believe that there is little prospect of generating value
for Shareholders from the Company's interest in LPD.
Planting Rate
The Company's original strategy was to plant between 3,000 and
5,000 hectares per annum across its two concessions in Liberia.
However, the development and planting rate in Liberia has been
slower for a number of reasons including, inter alia, the Ebola
virus epidemic in 2015, the introduction of the new planting
procedures and the global down turn in the natural resources
industry.
In 2015, EPO, through its JV partner KLK, signed up to the "No
De-Forestation" commitment which is set out in new procedures and
policies for developing new lands for oil palm development by the
Company. This included a moratorium on the development of new lands
for oil palm development until 1) certain scientific studies were
completed and 2) studies and assessment of these lands were
completed using the policies and procedures. These include, inter
alia, implementation of Free, Prior and Informed Consent ("FPIC"),
High Carbon Stock ("HCS") and High Conservation Value ("HCV")
assessments. Both the HCS and HCV approaches include guidance on
social best practice or social components, while FPIC is a tool for
ensuring social safeguards exist in new land development.
The above commitments and the Roundtable on Sustainable Palm Oil
and New Planting Procedures, which EPO also committed to, resulted
in a slowdown in the development of new lands for oil palm
development whilst such studies and assessments are undertaken.
As such, in Liberia, on both Palm Bay and Butaw estates, there
has been very little land development, and consequently planting of
new oil palms, since the introduction of the moratorium in
2015.
Funding
Since December 2013, as noted above, the KLK group has provided
significant funding to LPD, comprising loans of US$2.0 million,
US$20.5 million, US$30 million, US$30 million and US$20 million,
and equity funding of US$7.5 million, for the development of LPD's
oil palm assets in Liberia. In addition, EPO has provided funding
of US$6.2m to LPD by way of the EPO Loans, such loans ranking
behind those provided by KLK. Notwithstanding the minimal land
development work currently being carried out, in-country
expenditure (excluding any capital requirements associated with the
mill and / or port facilities) is approximately US$1 million per
month.
In addition, the Directors anticipate that LPD, in the medium
term, will require further funding in excess of the revenues
generated by the recently commissioned Palm Bay palm oil mill in
order to support the development of its business.
Whilst KLK has been supportive to date in providing the
necessary funding to develop the Group's operations, there can be
no certainty that KLK will continue to provide such funding. At the
same time, having consulted its advisers, the Board believes that
it would be extremely unlikely that the Company would be able to
raise sufficient funding from the equity markets or via the issue
of debt given the current economic climate, and the already heavily
indebted nature of LPD, to enable EPO to contribute towards the
funding required by LPD. Accordingly, EPO remains reliant on the
continued provision of funding from KLK, without which the ongoing
development of its assets would be significantly hindered.
In addition to the above, the Independent Directors are
conscious of the fact that for the non KLK shareholders, the low
free float of the Company has resulted in little trading activity
and therefore little opportunity to realise value from an illiquid
asset.
In light of KLK's offer to acquire the Company's interest in LPD
and having considered the alternative options from the perspective
of all Shareholders, the Independent Directors have concluded, in
consultation with the Company's other major Shareholders and its
advisers, that the best option for Shareholders is to seek to
conclude the Disposal. In reaching this conclusion, the Independent
Directors have taken into account an independent third-party
valuation of LPD, undertaken for the benefit of the deliberations
of the Independent Directors, and have undertaken a thorough
internal review of all potential alternative options. In addition,
the Independent Directors are of the view that the Disposal
represents the best means by which the Company can eliminate any
future obligations in relation to its interest in LPD, thereby
enabling the Board to progress the identification of a suitable
asset for acquisition which has the potential to generate value for
shareholders in the near to medium term.
After completion of the Disposal and with the final
reimbursement of attributable expenditure from LPD, estimated to be
approximately GBP300,000, the Directors anticipate that the Company
will have funds of approximately GBP800,000 available to provide
ongoing working capital and to allow for the assessment of
acquisition opportunities.
4. Summary of the SPA
Equatorial Biofuels, KLK Agro Plantations, KLK and the Company
have entered into the SPA, pursuant to which Equatorial Biofuels
and the Company have agreed to sell the 50 per cent. interest in
LPD held by Equatorial Biofuels to KLK Agro Plantations and novate
the EPO Loan to KLK Agro Plantations in consideration for the
payment of GBP1 by KLK Agro Plantations to Equatorial Biofuels.
On the Completion Date, LPD will pay EPO, in aggregate,
approximately GBP300,000 in respect of agreed invoices and the
reimbursement of certain expenses in connection with the
Disposal.
Completion of the Disposal is conditional upon the approval by
Shareholders of Resolution 1 at the General Meeting.
Information on KLK
KLK is amongst the largest plantation companies in Malaysia with
plantations, located in Peninsular Malaysia, Sabah and in
Indonesia, more speci cally Sumatra, Belitung Island, central and
east Kalimantan. KLK is also one of the largest manufacturers of
renewable palm-based oleochemical products and derivatives in the
oleochemical industry. KLK began as a plantation company more than
110 years ago and is now listed on the Main Market of Bursa
Malaysia Securities Berhad with a market capitalisation of
approximately GBP4.2 billion (as at 30 April 2020).
5. AIM Rule 15
In accordance with AIM Rule 15, the Disposal constitutes a
fundamental change of business of the Company. On Completion, the
Company would cease to own, control or conduct all or substantially
all, of its existing trading business, activities or assets.
Following completion of the Disposal therefore, the Company will
become an AIM Rule 15 cash shell and as such will be required to
make an acquisition or acquisitions which constitutes a reverse
takeover under AIM Rule 14 (including seeking re-admission as an
investing company (as defined under the AIM Rules) which requires
the raising of at least GBP6 million) on or before the date falling
six months from completion of the Disposal, failing which the
Company's Ordinary Shares would then be suspended from trading on
AIM pursuant to AIM Rule 40. Admission to trading on AIM would be
cancelled six months from the date of suspension should the reason
for the suspension not have been rectified.
Accordingly, should the Disposal complete, the Company will
become an AIM Rule 15 cash shell and will continue to evaluate
appropriate opportunities in the sectors the Board considers
appropriate seeking to identify one or more projects or assets
which the Company can acquire, which would constitute a reverse
takeover under AIM Rule 14.
Following completion of the Disposal and reimbursement of
invoices and expenses in an amount of approximately GBP300,000, the
Group is expected to have available cash resources of approximately
GBP800,000 with no other material assets or material outstanding
liabilities.
6. Related Party Transaction
KLK, through its wholly owned subsidiaries, KLK Agro Plantations
and KLKI, currently holds 50 per cent. of the issued share capital
of LPD and 223,959,702 Ordinary Shares in the Company, representing
approximately 62.86 per cent. of the Issued Share Capital of the
Company. In addition, Mr Lee Oi Hian, Mr Patrick Kee Chuan Peng, Ms
Yap Miow Kien and Mr Lee Guo Zhang, are all Directors of the
Company and are also either Directors (Mr Lee Oi Hian) or employees
(Mr Patrick Kee Chuan Peng, Ms Yap Miow Kien and Mr Lee Guo Zhang)
of KLK.
Accordingly, the Disposal constitutes a related party
transaction under Rule 13 of the AIM Rules by virtue of the
commonality in the share ownership structure and management boards
of KLK and the Company.
Michael Frayne and Geoffrey Brown, being the Independent
Directors for the purposes of AIM Rule 13, having consulted with
the Nominated Adviser, consider that the terms of the Disposal are
fair and reasonable insofar the Shareholders are concerned.
As set out above, the Independent Directors have sought to
consider all possible alternative options in light of the Company's
circumstances and have commissioned an independent valuation report
on LPD in order to support their considerations as to the merits of
the Disposal; having done so, they are of the view that the
Disposal represents the best means by which the Company can
eliminate any future obligations in relation to its interest in LPD
and will enable to Board to progress the identification of a
suitable asset for acquisition which has the potential to generate
value for shareholders in the near to medium term.
7. The Board
It is currently expected that the Board of the Company will
remain unchanged following Completion of the Disposal.
KLK and its appointees on the Board have indicated their support
for the Company retaining the listing of its Ordinary Shares on AIM
and pursuing a strategy to identify and acquire a suitable asset
for future development.
8. General Meeting
The Notice convening the General Meeting to be held at 8th
Floor, The Broadgate Tower, 20 Primrose Street, London EC2A 2EW, at
11:00 a.m. on 9 June 2020 at which the Resolution will be proposed
has been sent to Shareholders. The following resolution is to be
proposed at the General Meeting:
Resolution 1 - To approve the Disposal
Resolution 1, which will be proposed as an ordinary resolution,
seeking approval of the Disposal pursuant to the terms of the SPA
and as required under Rule 15 of the AIM Rules.
9. Action to be taken in respect of the General Meeting
Shareholders are encouraged to complete the Form of Proxy
enclosed within the Circular sent to Shareholders. The Board
requests that no Shareholders attend the meeting. Any Shareholders
that do attend will be refused entry.
To be valid, completed Forms of Proxy must be received by the
Company's registrars, Share Registrars Limited, at 1st Floor, 9
Lion and Lamb Yard, Farnham, Surrey GU9 7LL, not later than 11 a.m.
on 5 June 2020, being 48 hours before the time appointed for
holding the General Meeting.
Shareholders are entitled to appoint a proxy to attend and to
exercise all or any of their rights to vote and to speak at the
General Meeting.
ONLY THE CHAIRMAN CAN BE APPOINTED AS A SHAREHOLDER'S PROXY FOR
THIS PARTICULAR MEETING AND IN ADDITION SHAREHOLDERS CANNOT ATTEND
THIS MEETING IN PERSON.
10. Recommendation
The Independent Directors, having consulted with the Nominated
Adviser, consider the terms of the Disposal to be fair and
reasonable in so far as shareholders are concerned. The Independent
Directors also believe the Disposal to be in the best interests of
the Shareholders as a whole.
Accordingly, the Independent Directors recommend that
Shareholders vote in favour of the Resolution to be proposed at the
General Meeting as they intend to do in respect of their own
beneficial holdings of 528,957 Ordinary Shares in aggregate
representing 0.15 per cent. of the current issued share capital of
the Company.
DEFINITIONS
The following definitions apply throughout this announcement,
unless the context otherwise requires:
"AIM Rules" the AIM Rules for Companies published
by the London Stock Exchange from time
to time
"AIM" the market of that name operated by
the London Stock Exchange
"Board" or "Directors" the directors of the Company
"Circular" or "Document" the circular to be sent to Shareholders
containing details of the Proposals
"Conditions Precedent" the conditions precedent to the Disposal
by the Company set out in the SPA
"Company" or "Equatorial Equatorial Palm Oil PLC, a company
Palm Oil" or "EPO" incorporated and registered in England
and Wales, with registered number 5555087,
whose registered office is at 6(th)
Floor, 60 Gracechurch Street, London,
EC3V 0HR
"Completion" completion of the Disposal, expected
to occur following the General Meeting
"CREST" the computerised settlement system
(as defined in the CREST Regulations)
operated by Euroclear which facilitates
the transfer of title to shares in
uncertificated form
"CREST Regulations" the Uncertificated Securities Regulations
2001 (SI 2001/3755) including any enactment
or subordinate legislation which amends
or supersedes those regulations and
any applicable rules made under those
regulations or any such enactment or
subordinate legislation for the time
being in force
"Disposal" the proposed sale by Equatorial Biofuels
of its 50 per cent. interest in LPD
to KLK Agro Plantations in accordance
with the terms of the SPA
"Equatorial Biofuels" Equatorial Biofuels (Guernsey) Limited,
a company incorporated in Guernsey
and a wholly owned subsidiary of the
Company
"EPO Loan" the total liabilities owed by LPD to
EPO as at 31 March 2020 amounting to
US$6,223,964.60 in aggregate
"FCA" the Financial Conduct Authority
"Form of Proxy" the form of proxy for use by the Shareholders
in connection with the General Meeting
"General Meeting" the general meeting of the Company
to be held at 8th Floor, The Broadgate
Tower, 20 Primrose Street, London EC2A
2EW on 9 June 2020 at 11:00 a.m.
"Group" the Company and its subsidiary undertakings
"Independent Directors" Michael Frayne and Geoffrey Brown
"Issued Share Capital" the 356,277,502 Ordinary Shares in
issue as at the date of this announcement
"KLK" Kuala Lumpur Kepong Berhad, a company
incorporated in Malaysia and listed
on the Main Market of Bursa Securities
Berhad
"KLK Agro Plantations" KLK Agro Plantations Pte Ltd, a company
incorporated in Singapore, and a wholly
owned subsidiary of KLK
"KLKI" KL-Kepong International Limited, a
company incorporated in Cayman Islands,
and a wholly owned subsidiary of KLK
"KLK Loan" the loan agreements for a loan facility
of approximately US$131 million provided
by KLK Agro Plantations, a wholly owned
subsidiary of KLK, to fund the operations
and capital requirements of LPD
"London Stock Exchange" the London Stock Exchange plc
"LPD" Liberian Palm Developments Limited,
a company incorporated in the Republic
of Mauritius, and owned in equal shares
by Equatorial Biofuels and KLK Agro
Plantations
"Nominated Adviser" Strand Hanson Limited, the Company's
Nominated Adviser in accordance with
the AIM Rules
"Ordinary Shares" the ordinary shares of 1 pence each
in the capital of the Company
"Proposal" the proposal set out in this Circular,
whereby Shareholders are being asked
to consider, and if thought fit, approve
the Disposal
"Regulatory Information any information service authorised
Service" from time to time by the FCA for the
purpose of disseminating regulatory
announcements
"Resolution" the resolution to be proposed at the
General Meeting,
"Rule 15 Approval" Approval by the Shareholders of the
Disposal by passing the Resolution
at the General Meeting (pursuant to
Rule 15 of the AIM Rules)
"Shareholders" the holders of Ordinary Shares in the
Company
"SPA" the share purchase agreement dated
18 May 2020 between (1) Equatorial
Biofuels; (2) KLK Agro Plantations;
(3) KLK and (4) the Company, in respect
of the Disposal
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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