Perwaja gets RM1.8b injection from Zhi Yuan

KUALA LUMPUR: Loss-making steel maker Perwaja Holdings Bhd has announced a series of corporate exercises, which includes a capital injection of RM1.8 billion by its white knight, Chinese conglomerate Tianjin Zhi Yuan Investment Group Co Ltd to revive the Kemaman manufacturing plant.
Upon completion of the restructuring plan, Zhi Yuan will emerge as the single largest shareholder of Perwaja, with a 64.25% stake. It, however, will seek an exemption from the authorities from undertaking a mandatory take over offer for the remaining Perwaja shares.
Kinsteel Bhd's shareholding in Perwaja, meanwhile, will be reduced to 9.89% from the current 31.25%, based on the minimum subscription level.
Yesterday, ailing Perwaja inked a master framework agreement with Zhi Yuan for the proposed regularisation and revitalisation scheme, which is expected to be completed by June next year.
Zhi Yuan is involved in various businesses such as minerals, chemicals, alloys, new materials, construction materials, commercial real estates, logistics and international trading.
Zhi Yuan will subscribe for a special issue of 8.5 billion new Perwaja shares for RM1.7 billion, whereby the fund will be used to finance the purchase of new equipment and machinery to modify, upgrade and enhance the production facilities of the Kemaman plant.
Besides that, Zhi Yuan will also subscribe for its entitlement of up to RM100 million under a proposed rights issue at 20 sen per rights share.
The rights issue involves an issuance of up to 2.67 billion rights shares on the basis of four rights share for every five Perwaja shares held, together with one free warrant with every two rights shares subscribed. It is expected to raise at least RM244.8 million based on a minimum subscription level.
Under the balance sheet restructuring, Perwaja has proposed for a drastic par value reduction from the existing RM1 per share to 5 sen, which will give rise to credit of RM532 million, to reduce the company's accumulated losses of RM1.78 billion as at June 30, 2014.
As for the debt restructuring scheme, there will be a reschedule of the remaining debts into longer repayment tenure to better match the projected cash flow and to avoid a distressed sale of the company's assets. Perwaja has RM2.24 billion in debts at present.
During a press conference yesterday, Perwaja's director Datuk Alan Ong said the Kemaman plant will switch its focus to produce high grade steel, alloy and titanim-based products this time around, to have greater pricing power and generate better margins and earnings potential.
He expects the plant will start to operate in the third quarter of 2016, with small profits anticipated in the beginning.
"In FY2016, we can expect Perwaja to turnaround," he said.
Perwaja has ceased operations since August 2013 following the gas and electricity supply curtailment by Petronas and Tenaga Nasional Bhd.
However, Ong opined that the PN17 status could only be uplifted as soon as the first quarter of 2017, which is after six months in operations.
Meanwhile, Zhi Yuan chairman and president Zhang Zhong noted that 70% of the products produced at the Kemaman plant will be exported to China, with the remaining 30% for the Southeast Asia market.
While there is an oversupply glut in the steel industry, he stressed that demand for high-grade stainless steel is still resilient.
"This would be our targeted market," he noted.
He further explained that by operating the Kemaman plant, the company's logistics expenses could be reduced as the raw materials needed are from the region.
Perwaja has been in the red in recent years, with a net loss of RM119.57 million for the third quarter ended March 31, 2015.
Trading in Perwaja shares was suspended yesterday pending the material announcement. It closed 2.5 sen or 8.2% lower to 28 sen on Tuesday. Trading in the counter will resume today.