This article first appeared in The Edge Financial Daily, on January 12, 2016.

KUALA LUMPUR: Integrated poultry farmer Lay Hong Bhd is tying up with Japanese processed food firm NH Foods Ltd (NHF) to expand its business overseas.

In its bourse filings yesterday, Lay Hong said it had entered into a share subscription agreement with NHF for the latter to subscribe to 5.25 million of its placement shares, which represent a 9.09% stake of the company’s enlarged issued and paid-up share capital, at RM5.81 per share — a discount of about 10% from its five-day volume weighted average market price up to and including last Thursday of RM6.4553.

The subscription, which will raise RM30.5 million for Lay Hong and reduce its net gearing to 0.85 times from 1.03 times, will also raise its net asset per share to RM2.98 from RM2.71. The entrance of NHF into the company will also trim the Yap family’s stake to 37.66% from 41.43%.

Further, Lay Hong has inked a memorandum of understanding (MoU) with NHF expressing their intention to work together on the export of processed foods overseas and set up a joint venture (JV) company, and to discuss and negotiate a definitive agreement to document and govern the relationship between the parties as shareholders of the proposed JV.

The shareholding in the JV shall be 49% Lay Hong and 51% NHF.

Lay Hong said it will fund its stake subscription in the JV — though it did not specify how much it will entail — via internally generated funds, bank borrowings and/or additional funds to be raised from the capital market.

Via the JV, NHF shall contribute its expertise in the areas of research and development (R&D) and manufacturing of further processed foods, and be responsible for matters relating to the sales and exports of further processed foods to overseas markets, including Singapore and Japan.

Meanwhile, Lay Hong shall be responsible for matters relating to the operations of the JV in Malaysia, including licensing, taxation, obtaining certifications such as the halal and Hazard Analysis Critical Control Point certifications, procurement/leasing of land, logistics and sales and marketing in Malaysia.

Lay Hong said the MoU and the proposed JV are part of its overseas business expansion plan, which are expected to improve its financial position in the long run.

The trading of Lay Hong’s shares will resume today, after being suspended last Friday pending the announcement. It last closed at RM6.80, giving Lay Hong a market capitalisation of RM354.38 million.