By Sherilyn Goh
Beleaguered steel producer Perwaja Holdings Bhd is expected to receive a capital injection totalling RM1.8 billion from China’s Tianjin Zhiyuan as part of its revitalisation plan aimed at improving the loss-making company’s financial standing, according to the group’s director Alan Ong.
“Under the master framework agreement (MFA), Zhiyuan will subscribe for the entire proposed special issue amounting to RM1.8 billion, and provide irrevocable written undertaking to Perwaja to subscribe for its entitlement of up to RM100 million under the proposed rights issue with warrants.
“The long-term viability of Perwaja Group will be secured with the proposed regularisation and revitalisation scheme, as it is expected to put Perwaja Group back onto stronger financial footing and contribute positively to its long-term future earnings,” Ong said during the MFA signing ceremony held earlier today.
The MFA is to formalise the parties’ intention and understanding of the proposed regularisation and revitalisation scheme, and will supersede the first and second memorandum of agreements, as well as lease agreement signed between Perwaja and Tianjin Zhi Yuan Investment Group Co Ltd over the past few months.
The corporate exercise, expected to be carried out over four tranches, will see the Chinese firm holding 37% of the group’s share at first tranche, and subsequently 64% of Perwaja’s share upon its completion expected to take place by June 2016.
Today’s signing is the culmination of Zhiyuan’s initial interest which was first made public by Perwaja on Feb 11 this year.
Kinsteel Bhd and Maju Holdings Sdn Bhd, the existing largest shareholders of Perwaja, will see their collective shareholding diluted from the current 64% to 25% upon completion of the corporate exercise.
Maju Holdings Sdn Bhd is the vehicle of Perwaja executive chairman Abu Sahid Mohamed and he also chairman of Kinsteel. Both Kinsteel and Perwaja are managed by father-and-son duo Pheng Yin Huah and Henry Pheng Chin Guan who also retain a major stake in both companies.
Alan Ong
In what dubbed as a self-rescue exercise, Ong expects Perwaja to turn around immediately upon completion of the exercise, which is currently pending approval from shareholders and regulators.
When asked on the likelihood that the plan will secure stakeholder support, he said: “We are hopeful that the creditors will support the scheme because it is in interest of all stakeholders, because this is the concrete, tangible way in which Perwaja can reinvent itself.”
“We are confident. I think good sense will prevail, and it is in commercial interest if the plan succeeds,” he said.
Based in China, Zhiyuan Group operates both locally and abroad with business interests spreading across various industries including minerals, chemicals, alloys, new materials, construction materials, commercial real estates, logistics, and international trading.
Zhiyuan supplies largely to mainland China constituting 70% of its target market, with the other 30% being Southeast Asia. According to Zhiyuan’s president Zhang Zhong, the location of Perwaja’s plant in Kemaman will be ideal logistically, providing it with a competitive advantage in terms of reduction in logistics cost due to its strategic location.
“One of the key reasons we have chosen to invest in Perwaja is the adaptability of the machinery at its plant for modification using Zhiyuan’s patented technology and know-how to manufacture stainless steel and other alloys.
“In addition, Perwaja’s plant is strategically located amidst developed infrastructure. It is near Kemaman Port, a major seaport on the East Coast of Peninsular Malaysia.
“And in terms of raw materials, iron ore can be sourced locally,” Zhang told the members of the press.
With Zhiyuan’s coal gas technology expected to replace the more expensive natural gas, Perwaja will reposition itself as a stainless steel producer.
To date, Perwaja registered a net loss of RM1.7 billion, with a total debt amounting to RM2.2 billion. Perwaja will also have to register two consecutive quarters of profits before its Practice Note 17 (PN17) status could be rescinded.
Perwaja’s shares are suspended on Bursa Malaysia starting July 14, pending its announcement today.
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