Posted on 16 Jul 2015
China’s Tianjin Zhiyuan Investment Group Ltd (Zhiyuan) will inject RM1.8bil into Perwaja Holdings Bhd under a corporate exercise that will see the Chinese firm emerging as a major shareholder of the ailing steel maker.
The entry of Zhiyuan, which is a diversified group involved in chemicals, minerals construction materials and logistics, among others, forms the core of the regularisation and revitalisation scheme for Perwaja.
Units of Perwaja and Zhiyuan signed a conditional master framework agreement yesterday to formalise the parties’ intention and understanding in relation to the corporate exercise.
Perwaja director Datuk Alan Ong said the corporate exercise was expected to be completed by June 2016 and that the group should turn around by March 2017.
“We should be earnings before interest, tax, depreciation and amortisation (Ebitda) positive three quarters after the completion of the exercise next June,” Ong said after the signing ceremony yesterday.
Under the corporate exercise, Zhiyuan will subscribe for Perwaja’s entire proposed special issue of shares amounting to RM1.7bil, and provide irrevocable written undertaking to Perwaja to subscribe for its entitlement of up to RM100mil under a proposed rights issue.
The RM1.8bil capital injection will be split into four tranches with the first tranche seeing Zhiyuan injecting RM600mil for the proposed special and rights issues. Subsequently, a total of RM400mil each will be injected in the second, third and fourth tranches.
The capital injection in the first tranche will see Zhiyuan emerging as a major shareholder in Perwaja with a 37% stake. Zhiyuan’s shareholding will eventually increase to 64% upon the full completion of RM1.8bil injection. The Chinese firm will be seeking an exemption from the regulator from undertaking a mandatory takeover for the remaining shares in Perwaja.
Kinsteel Bhd and Maju Holdings Sdn Bhd, which collectively hold 64% in Perwaja currently, will see their holdings reduced to about 25% upon the completion of the exercise.
“The proposed special rights issue will raise gross proceed of RM1.7bil to finance the purchase of new equipment and machineries to modify, upgrade and enhance the production facilities of the Kemaman plant which was halted in August 2013,” said Ong.
“We are looking at June 2016 to finalise the proposals, which will lead to the start of the Kemaman operations. “After which, we expect to be profitable in the third quarter of our financial year 2016 which ends in March 2017. It will take two consecutive quarterly profits for Perwaja to come out of its PN17 status,” Ong said.
He said the group had a total RM2.2bil debts and count Petronas Gas Bhd, Tenaga Nasional Bhd, the Government, financial institutions and trade creditors as its major creditors.
Zhiyuan president and chairman Zhang Zhong said: “This is not a takeover nor it is a reverse takeover. This is a collaboration between the two companies.”
“The stainless steel industry is seeing growing demand especially in the high-end steel products, which Zhiyuan’s technology will be able to produce,” he said.
He added that the main advantage offered by Perwaja was the reduction of logistic expenses – leading to lower production costs and a better competitive advantage.
“Due to the technology we are introducing, we will be using coal gas instead of natural gas, which is cheaper,” he said.
Zhang said one of the key reason it chose to invest in Perwaja was 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.
He cautioned that the Kemaman plant may not start operation in June 2016.
“It is our plan to start operation in June 2016 but there is no guarantee that by then it will start operation. We need to get various approvals including from the regulators,” Zhang said.
