Supplier of high-quality agricultural products Alterra Limited (ASX: 1AG) made an announcement on 11 December 2018 stating that it has completed all the internal transfers of assets from Alterra to its wholly owned subsidiary Carbon Conscious Investments Ltd (CCIL). Further, the company also announced that it has executed all agreements with key customers.
The Carbon Business of Alterra consists of carbon property rights, licenses and contract management agreements and it is expected to generate revenue of approximately $21 Mn between 1 January 2019 and 30 September 2027.
The Board of the company wanted to demerge the Carbon business from Alterra which is why the Board proposed a transaction that would make the Alterra’s Carbon Business a primary asset and key focus of Carbon Conscious Investment Ltd (CCIL) which is currently a 100 percent subsidiary of Alterra. The demerger of the carbon business is proposed to occur through the in?specie distribution of 85% of shares held by Alterra in CCIL to Alterra shareholders, with Alterra retaining 15 percent of CCIL in its own right.
After the demerger, the company will keep managing the Carbon Business under the service agreement, which maintains all contractual obligations to customers of the Carbon Business and provides all necessary tenancy and administrative support.
The main reason behind the demerger was the political uncertainty in relation to carbon markets and carbon pricing, further, the company has not seen any new significant opportunity for the company’s growth since 2012. The demerger will also protect the carbon business from risks that are associated with Alterra’s agricultural ventures. After the Demerger, CCIL will be managed conservatively with an emphasis on keeping costs down and maximizing cash? flow and has a stated dividend policy to distribute 90% of its net profit after tax to shareholders.
To finalize this demerger, the company required an approval from the shareholders in the upcoming Extraordinary General Meeting (EGM) to be held on 20 December 2018. The Company’s Board has advised its shareholders to vote in favor of the proposed Demerger.
As per the Company’s Managing Director Mr. Andrew McBain, the demerger of carbon business will provide Alterra shareholders with continued exposure to the long-term and consistent cash?flows of the existing Carbon Business. The demerger will also enable Alterra to be more aggressive in developing new business opportunities and improve the overall efficiency of the business.
Meanwhile, in the last six months, the share price of the company increased by 2.22 percent as on 10 December 2018 and traded at a PE multiple of 19.170x. 1AG’s shares traded at $0.046 with a market capitalization of circa $6.79 million as on 11 December 2018.
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