DutaLand’s trust deficit
ON Friday, DutaLand Bhd said it had completed the sale of its Sabah plantation land to Boustead Plantations Bhd for RM750mil.
This means that DutaLand will be receiving that largesse soon, if not already. That would boost its net cash to around RM792mil (including its short-term investments). This, in turn, works out to having cash and cash equivalents of around 93 sen per share. But DutaLand’s stock is trading at a mere 58 sen apiece. So what gives?
It could be that the market has not absorbed the news that the sale of the plantation has been completed, considering that the deal was first announced back in August last year. It had to get a number of approvals, including getting shareholders to approve it. Recall also that a previous attempt to hive off the land to IOI Corp Bhd did not materialise.
So, perhaps shareholders were not confident that this deal with Boustead would also go through. Finally though, could it be a case of shareholders of DutaLand having a trust deficit in the company? In other words, they do not believe that the cash proceeds would be used to benefit shareholders.
To be fair, DutaLand has now crossed a major hurdle in the disposal. When announcing the deal last August, DutaLand said the sale would help the company unlock value in its assets, and that given the size, location and market value of the land, it was not easy for DutaLand to dispose the plantation assets at market value to a single buyer. It said that, hence, the sale to Boustead Plantations was an attractive offer and would enhance shareholder value.
How exactly the latter will pan out is left to be seen. Would the company, for example, announce a special dividend from part of the sales proceeds? Notably, DutaLand intends to utilise nearly 94% of the total proceeds, or RM707mil, to pursue new business undertakings within three years from the receipt of the proceeds.
To be also noted is besides the land sold and the cash hoard it has, the company also has other residual land. Will it, thus, be considered an undervalued stock by the market, or will it still suffer from a trust deficit?