K Euro enters pact to sell Talam stake

07/08/2007 The Star By C. S. Tan

In an announcement yesterday to Bursa Malaysia that departs from the norm, K Euro's directors highlighted several observations.

The directors pointed out that the two companies – Selasih Jauhari Sdn Bhd and Desiran Johan Sdn Bhd – were private limited companies with paid-up capital of RM2 each, and that they were in no position to ascertain their credibility.

It was further highlighted that the K Euro board was not certain the option agreement would be successfully implemented because “there are numerous conditions precedent to be fulfilled”.

The two private companies represented to K Euro were in a position to offer a scheme to enhance the value of the assets of Talam Corp Bhd, an associated company of K Euro.

They also said the scheme could enable Talam to generate cash to reduce its borrowings.

Should the proposed scheme be unable to meet what the two companies have represented, the boards of Talam and K Euro would not accept it, and the option agreement would lapse.

K Euro's board also highlighted that the purpose of the option agreement was to enable the two private companies to submit their proposed scheme to the boards of K Euro and Talam for consideration.

In the announcement, K Euro said the option agreement was for Selasih Jauhari and Desiran Johan to acquire a 25% stake in Talam, amounting to 157 million shares, at an exercise price of 30 sen a share.

Presently, K Euro holds 42.94% of Talam, and upon an exercise of the call option, Selasih Jauhari and Desiran Johan would have a 17.94% stake in Talam.

The scheme proposed by the two private companies would not increase the borrowings of Talam. Further, the option price was fixed at 30 sen a share but they represented to K Euro that there would not be a reduction in the value it held in Talam, being RM141.4mil, or 51 sen a share, in book value.

The granting of the call option is conditional on several approvals, including agreement from the board of K Euro, and the board and shareholders of Talam for the proposed scheme. K Euro said it would now concentrate on its two principal projects: the West Coast Expressway and Canal City.

Sources said while it was announced in June that IJM Corp Bhd would proceed to acquire a 25% stake in K Euro for RM33.1mil cash, or 28 sen a share, the exercise was not completed and as such, IJM was still not represented on the K Euro board. The conditional agreement with Selasih Jauhari and Desiran Johan was, therefore, a decision made by K Euro's existing board.

There might be a desire to enhance the value of Talam, especially since K Euro's stake in it would eventually be diluted anyway, when the convertible instruments in Talam are issued and converted into shares by its creditor banks.

The sources believe the two private companies' proposed scheme might involve an injection of some assets that have yet to be disclosed. They also believe that although the private companies have paid-up capital of just RM2, they are owned by a businessman of means whose identity had remained undisclosed.