Hiap Teck eyes restart of Eastern Steel

PETALING JAYA: Hiap Teck Venture Bhd is disposing of a 20% stake and shareholders advances in Eastern Steel Sdn Bhd (ESSB) to China’s Jianlong Industry Company Limited for 225.6 million yuan (RM139.3 million) cash, in a bid to restart operations, which have been halted since October 2015.
Jianlong is in the production of steel products with an annual capacity of six million metric tonnes, whose ultimate group of company is Beijing Jianlong Heavy Industry Group Company Limited. Beijing Jianlong’s group of companies are major steel producers in China with a total annual production capacity of 24 million tonnes.
The move by Hiap Teck will see Jianlong emerge as a controlling shareholder (60%) in ESSB, which is in the manufacturing, selling and dealing of a range of steel products using blast furnace plant. Hiap Teck will hold a 35% interest in ESSB.
Last month, Hiap Teck’s joint venture partner Orient Steel Investment Pte Ltd disposed of its entire 40% stake in ESSB; and all of the shareholders’ advances to Jianlong.
“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 exercise 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,” Hiap Teck said in a stock exchange filing.
ESSB started out as a joint venture between Hiap Teck, Orient Steel and Chinaco Investment Pte Ltd with 55%, 40% and 5% equity shareholdings, respectively. However, in view of depressed market prices and the soft demand of steel slabs and increased volatility of foreign exchange rates, the joint venture decided to halt operations in October 2015 to minimise losses.
The funds from the disposal will be used to fund Hiap Teck’s portion of additional capital requirements of ESSB.
Assuming that the exercise had been effected on July 31, 2017, Hiap Teck and its subsidiaries are expected to realise a loss on disposal of RM21.8 million, which represents a loss per share of 1.7 sen.
For the six month period ended Jan 31, 2018, ESSB posted a net profit of RM17.7 million against RM19.3 million revenue. The exercise is expected to be completed by the first quarter of 2019.
As the proposed disposal is expected to be completed in the first quarter of 2019, it is not expected to have a material effect on the earnings of the group for the financial year ending July 31, 2018.