This article first appeared in The Edge Malaysia Weekly on December 25, 2017 - December 31, 2017

Tan Sri Lee Shin Cheng

Executive chairman, IOI Corp Bhd

LEE’S IOI Corp Bhd surprised the market in September when it announced the proposed sale of 70% of Loders Croklaan, the group’s speciality fats business, for RM3.94 billion cash to global agribusiness and food company Bunge Ltd.

It is, after all, a prized business that IOI has grown since it was acquired in 2003 for RM814 million from Unilever. The acquisition immediately gave IOI a presence in Europe and North America. It also enhanced the group’s value chain, further integrating its operations from upstream to downstream.

In the last 14 years, Loders has expanded its business to Africa, China and Southeast Asia, and its earnings have nearly quadrupled.

Loders is one of the world’s leading suppliers of specialised ingredients for making confectionery, biscuits, cakes, chocolates and formula milk. It competes with AarhusKarlshamn, Fuji Oil Co Ltd and Intercontinental Specialty Fats in this space.

So, why is IOI selling Loders then? In a press statement on the sale, IOI said that to sustain growth and better serve its multinational customers, Loders needs to expand to regions such as South America and South Asia as well as grow its product offerings to include seed oil-based products.

“In IOI’s assessment, the faster and more effective way to do so is by leveraging Bunge’s plant assets in these regions and its established integrated supply chain in seed oils,” it added.

IOI will retain its remaining 30% stake in Loders but has the right to require Bunge to purchase all of the former’s interest in Loders over the next five years.

The proceeds from the sale will be used to pare down IOI’s borrowings and improve its gearing.

Lee’s son, Datuk Lee Yeow Chor, who is CEO of IOI, has also said the group plans to expand its plantations.

However, some analysts say the sale could lead to volatility in IOI’s earnings due to greater exposure to volatile commodity prices given its reduced presence in the downstream business. Loders contributes to half of the downstream business’s revenue. Whether the sale of Loders will lead to more volatile earnings for IOI will only be clear after 2018 as the sale is expected to be completed in 4Q2018.

Lee and his family vehicle, Progressive Holdings Sdn Bhd, indirectly controlled 47.16% of IOI as at Aug 28. 
 

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