Boustead Plantation IPO

Boustead announced that it would be listing its plantation business.

Boustead's plantation assets, well at least some of its, were already  in the hands of the public, in the form of the Al-Hadharadh Reit. Al Hadharah REIT is the only plantation REIT in Malaysia which is now being taken private by Boustead.

The move to take the REIT private was, I think, necessary because of the nature of the plantation business. You see, REIT would need to distribute at least 90% of its income to qualify for the tax-pass thru status. And generally this is what REITs do.

The problem is, the plantation business or assets would have to undergo what is called a replanting phase. And that is big bucks, major cash flow sucking exercise. As REITS does not keep its cash/income due to reasons stated above, it would have no spare cash to finance the replanting exercise. It would then have to either borrow or go ask for some money from the shareholders. Borrowing would increase the levarege and the interest expense would cut into the dividend yeild for the REIT while asking the shareholders for more money is never a 'liked' exercise.

Putting the plantation assets back into a plantation business model and float them, I think, is a better move for Boustead as it would then have a free hand on managing its cash flow and income retention policy. The tax element (REIT tax pass thru) does not really have a significant in Malaysia as our tax system is fairly straight forward and simple. REIT holders still get taxed at their income level and if Boustead Plantation had to pay corporate tax, the dividend is tax exempt/free under the new ruling anyway.

Good move.