Hiap Teck to sell 20% of Eastern Steel
Steel pipe company to dispose of stake to Shanxi Jialong for RM139mil
PETALING JAYA: Steel pipe maker Hiap Teck Venture Bhd has proposed to dispose of a 20% stake in Eastern Steel Sdn Bhd (ESSB) to Shanxi Jialong Industry Co Ltd for RM139.3mil to find a new strategic partner that can help turn ESSB around.
In a filing with Bursa Malaysia, Hiap Teck said the disposal would also help kickstart ESSB’s operations, which is principally involved in manufacturing, selling and dealing in a range of steel products using a blast furnace plant.
ESSB is a joint-venture company between Hiap Teck, Orient Steel Investment Pte Ltd and Chinaco Investment Pte Ltd.
ESSB’s operations have been halted since 2015 due to depressed market prices and soft demand for steel slabs, as well as the increased volatility of foreign exchange rates.
“The proposed disposal is in line with Hiap Teck’s plan to bring in a new strategic partner to resume the operations of ESSB, as Orient Steel has decided to exit its investments in ESSB due to a change in its corporate strategy.
“The proposed disposal represents an opportunity for Hiap Teck to partner with an established and experienced steel player, namely, Jianlong who can bring value in terms of capital, technical expertise and resources that can support ESSB in its resumption of production and to further expand its steel business,” said Hiap Teck.
Hiap Teck said it had entered into an equi- ty and debt transfer agreement with Jianlong on April 3 for the disposal of 89.52 million shares of a 20% stake in ESSB for a total cash consideration of 225.6 million yuan, equivalent to approximately RM139.3mil.
It added that the proposed disposal would also reduce its capital outlay, as Hiap Teck’s portion of the new shareholders’ capital injection to resume ESSB’s production and operations would be funded from proceeds from the proposed disposal.
Upon the completion of the disposals by Hiap Teck and Orient Steel, Jianlong will hold a 60% stake in ESSB. Hiap Teck’s stake will be reduced to 35%.
Chinaco will maintain its 5% stake, while Orient Steel will no longer be a shareholder of ESSB upon completion of the disposal.
“With the new strategic partner, there is potential of a successful turnaround of ESSB.
“This will provide Hiap Teck the opportunity to recoup some of the earlier losses from its balance of a 35% stake still held in ESSB after the proposed disposal,” said Hiap Teck.
“Barring any unforeseen circumstances and subject to all requisite approvals being obtained, the proposed disposal is expected to be completed by the first quarter of 2019,” it said.
According to the filing, Jianlong is a subsidiary of Beijing Jianlong Heavy Industry Group Co Ltd and has an annual capacity of six million tonnes.
Beijing Jianlong is a major steel producer in China with a total annual production capacity of 24 million tonnes.
In June 2016, Hiap Teck via ESSB inked a memorandum of understanding with Chinese steel products producer Ansteel Group Corp’s unit Angang Group Hong Kong Co Ltd to explore, discuss and negotiate areas of cooperation between their units.
This included ESSB’s production resumption, future expansion of its production capacity and product range, according to reports. Hiap Teck shares dropped four sen to 36.5 sen yesterday.