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Monday, January 14, 2008

Bandar Raya to reconsider disposal of Mieco

Bandar Raya Developments Bhd (BDRB) shareholders may again be presented with a proposal for distributing Mieco Chipboard Bhd shares.

BDRB chief executive officer Datuk Jagan Sabapathy said the group was still mulling over the disposal of its manufacturing business – a 56.8% stake in Mieco, the second largest chipboard maker in Asia-Pacific.

“The board still wants to spin off the manufacturing business because we want to focus on the property development business,” Jagan told StarBiz. “It is hard to manage a company that has complex businesses.”

Jagan said the group would be “actively looking for buyers.”

“We will also look at various option ... we may revisit the idea of distributing shares back to shareholders,” he added.

In August 2005, BDRB proposed a capital repayment which would be satisfied by the distribution of up to 119.1 million shares in Mieco on the basis of one Mieco share for every four BRDB share.

However, Mieco’s share price tumbled after the proposal was made due to its deteriorating profitability caused by the supply glut and rising raw material costs.

BDRB shareholders rejected the proposal at the EGM in February 2006 because Mieco shares were worth less after the big drop.

The gloomy earnings prospect has dragged down Mieco's share price since the second half of 2005 despite the current bull run on Bursa Malaysia. The stock fell to 75 sen last Friday from the RM2 level in August 2005. Mieco does not seem to be out of the woods yet.

The company incurred a net loss of RM2.6mil or loss per share of 1.26 sen for the nine months ended Sept 30, 2007.

Jagan admitted that the chipboard manufacturing industry was undergoing a tough time.

“There is an oversupply in the industry due to capacity expansion in the last two years. There is also cost pressure because of rising raw material prices,” he said.

But Jagan stressed that BDRB's plan to dispose off its stake in Mieco had “nothing to do with the chipboard maker's performance.”

He believes Mieco would bounce back to the levels of its heydays. “The glut in the industry will subside when the supply of hardwood gets scarce,” he said. Also, he pointed out that the increasing environmental awareness would lead to a growing demand for chipboard, which is more environment-friendly.

By The Star (by Kathy Fong & Yvonne Tan)

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