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Darco defends Indonesia project, says financially rewarding 'if carefully managed'

DARCO Water Technologies’ board of directors said its proposed Indonesia waste management project is a “rare opportunity” to bag a long-term concession project in a new territory where the group does not have a presence.

The board had defended its decision to enter into the project in a filing on Monday, after The Business Times (BT) reported that minority shareholders fear the project – which could require up to US$46 million in fresh funding – will be a drag on the firm.

Darco this year acquired a 75 per cent stake in Panghegar Energy Indonesia (PEI), which in turn owns 80 per cent of Jabar Bersih Lestari (JBL). JBL has inked a cooperation agreement with the West Java government to provide waste management services in certain parts of the province.

A third-party consultant engaged by Darco to perform due diligence later recommended that certain terms of the agreement should be renegotiated to render the project viable. The West Java government, however, has indicated it is not agreeable to a renegotiation and that JBL should commence operation of the project, according to Darco’s filing last Thursday.Darco on Monday said it wished to “address the incorrect impression” that decisions relating to the project were made without due consideration by the board.

“If carefully managed, the board believes that the project, which has built-in downside protection from the manner the acquisition is structured, could be financially rewarding for the group,” it stated on Monday.

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Darco, which has no long-term concession projects under its belt, added that securing the Indonesia project will be a “decisive win” - subject to the terms being right and earnings accretive - as it will bring a stable stream of revenue and help establish a track record for the group to bid for more such projects in Indonesia and the rest of Asia.

The board determined the management should proceed with the stake acquisition with the necessary safeguards, as it was of the view that the project will transform the group and establish a new business segment.

Darco has asked Emsus, its business partner and the seller of the PEI 75 per cent stake, to reach out to the West Java government to find a “mutually beneficial and workable solution”.

Darco also clarified that a proposed placement was scrapped due to “market instability” amid Covid-19 concerns. BT had initially reported that the placement was called off after minority shareholders argued that any placement made while the company was in distress should be put to a vote.

The company also said its deputy chairman Robert Wang Zhi has never had a personal interest in the PEI stake acquisition and the project - other than through his shareholding interest in Darco - as far as the board is aware and after it had made “due enquiries”.

BT had reported that minority shareholders owning a combined 15 per cent stake in Darco had appealed for Mr Wang to recuse himself from further discussions and decisions on the project as he is liable to fully reimburse Darco for any costs incurred if Darco cannot or decides not to proceed with it.

The firm also reiterated on Monday that Mr Wang offered to pay for costs and expenses incurred by Darco in excess of S$100,000, and to take over the project if the board is not satisfied with the findings of the due diligence and feasibility studies and exercises the reversal option.

In a separate filing, Darco sought to respond to remarks in a cessation notice posted on SGXNet. Independent director Tay Von Kian stepped down from Darco’s board last week as he had not been re-elected at Darco’s annual general meeting on Friday. In a cessation notice posted on SGXNet, Mr Tay had expressed some misgivings about the Indonesia project and also about the state of Darco’s corporate governance.

Darco’s board said it has introduced a number of corporate governance initiatives, including the engagement of BDO to carry out an audit on its internal control processes.

The board also objected to Mr Tay’s characterisation of the board’s decision on the Indonesia project as being driven by a single director.

Darco shares fell S$0.02 or 10.5 per cent to end Monday at S$0.17.

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