Japfa Ltd - DBS Research 2016-06-09: KKR to subscribe JPFA’s private placement and buy 3.87% more from JAP

Japfa Ltd - DBS Research 2016-06-09: KKR to subscribe JPFA’s private placement and buy 3.87% more from JAP JAPFA LTD UD2.SI 

Japfa Ltd (JAP SP) - KKR to subscribe JPFA’s private placement and buy 3.87% more from JAP

  • Announced subscription agreement with KKR for 750m shares out of up to 1.066bn in proposed private placement.
  • A separate sale and purchase agreement with Japfa Ltd would also see an additional 3.87% stake sale to KKR.
  • If realised, KKR would have a combined stake of 10.44% in JPFA while Japfa Ltd’s ownership would be diluted to 51%.
  • Under a scenario where proceeds are employed to pare down debts, JPFA’s FY17F earnings could be lifted to Rp995bn from Rp901bn; and valuation to Rp990/share from Rp910 currently.


  • Japfa Comfeed Indonesia (Bloomberg ticker: JPFA IJ) last night announced that it had on 8 Jun-16 entered into subscription agreement with KKR Jade Investments Pte Ltd (KKR). Under the agreement, KKR will subscribe 750m new shares out of a maximum of 1.066bn new shares (without pre-emptive rights) that JPFA had on 25 May-16 announced to plan to undertake for a minimum price of Rp935.6/share (subject to EGM on 1 Jul-16). The proposed subscription of 750m new shares would represent c.6.57% of the enlarged share capital. Following completion of the proposed subscription agreement, JPFA would hence be able to issue a further 316m shares under new issue mandate.
  • Under a separate sale and purchase agreement with Japfa Limited (Bloomberg ticker JAP SP), KKR will also purchase an additional 441,664,650 shares of JPFA from JAP (representing 3.87% of the enlarged share capital) at Rp850/share (subject to certain closing conditions). If both agreements are realised, KKR will own a combined 10.44% stake of JPFA. Assuming placement of 750m shares and 3.87% share sale, JAP will continue to have 51% ownership of JPFA. Hence, to maintain majority control, we do not anticipate JPFA to seek placement for the remaining 316m shares.
  • As part of the investment, JAP and KKR have also entered into a deed of undertaking, which stipulates, inter alia, appointment of nominee of KKR to the board of directors of JPFA. This deed of undertaking will remain valid so long as KKR holds more than 5% interest in JPFA.


  • As previously announced, the stated purpose of the private placement is to strengthen capital and to increase liquidity. The group had Rp6,915bn of total borrowings as at end Mar-16 – of which Rp1,500bn of IDR bonds will come due in 2017. Based on calculated gross proceeds of Rp702bn; the group would not need to refinance the maturing bonds; as end cash balance would remain adequate. However, we understand the group may proceed with IDR bonds issuance to repay for more expensive bank borrowings as well as to refinance Rp1,500bn maturing next year.
  • Under a scenario in which we assume the group repays Rp1.7tr of its Rp2.2tr short term bank borrowings this year and issues Rp3tr bonds next year to refinance both its Rp1,500bn IDR bonds and remaining US$199m USD notes, JPFA’s fully diluted FY17F EPS would increase to Rp85/share from Rp84/share – while FY17F earnings would likewise be
  • Japfa Ltd lifted to Rp968.0bn from our current forecast of Rp900.7bn. It would also lift the counter’s valuation (based on forward EV/EBITDA multiple of 6.5x) to Rp980 from Rp910/share currently.
  • This exercise would also impact JPFA’s contribution to holding company JAP. Based on our estimates, the enlarged shares would dilute JAP’s ownership from 58.73% (as at 10 May-16) to 51.0%. Hence, taking into account the improvement in FY17F PATMI, this private placement would only marginally reduce JPFA’s PATMI contribution from US$38.6m (25.7% contribution) to US$36.0m (23.2% contribution).
  • Based the assumed scenario of significantly reduced short term IDR debt in JPFA, JAP’s FY17F earnings would also be lifted to US$155.1m from US$150.3m currently. Likewise,
  • JAP’s SOP-based valuation could be adjusted upwards to S$1.25/share from S$1.10 currently.


  • We view this news positively; as it would lift some burden from net gearing ratio of 91.6% for JPFA and 71.2% for JAP (as at 31 Mar-16). Under the above scenario, JPFA’s net gearing ratio should drop to 62% by end CY17F; while JAP’s net gearing ratio should drop to 65%.
  • JPFA’s deleveraging exercise would also be positive for the group’s earnings growth potential, now that capital expenditures have moderated. Subject to clarification with management, we are maintaining our forecasts, TP (S$1.10) and recommendations (BUY) on both counters for now.

Ben Santoso DBS Vickers | http://www.dbsvickers.com/ 2016-06-09
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