KUALA LUMPUR (Oct 23): The Minority Shareholder Watchdog Group (MSWG) is not convinced by China-based XingHe Holdings Bhd's justification for its proposal to raise cash proceeds of between RM11.95 million and RM17.97 million via a private placement exercise, with which it is contemplating to fund its new business venture into tuna and related marine food processing business.

In particular, MSWG raised an eyebrow at XingHe's explanation to issue up to 352.28 million of new shares and raise the said cash "in a relatively [expeditious] manner and without incurring interest expenses associated with bank borrowings".

Instead of resorting to the stake-dilutive private placement exercise, the watchdog group said XingHe's board of directors "should consider making full use of the company's existing cash pile of RM259.6 million (as at end-June) before opting for cash raising exercise via private placement at the cost of the shareholders".

"It also depends on how much money is the company (is) raising via the proposed private placement," MSWG, a firm promoter of good corporate governance practices, voiced its concern in its latest The Observer newsletter.

In addition, MSWG is also puzzled by XingHe's decision to raise the said cash via the private placement route, given its "relatively low" debt load of RM27.09 million as at end-2016, equivalent to a gearing ratio of 5%.

MSWG raised its concern after XingHe had on last Friday clarified that it is considering to use the cash proceeds from the private placement exercise to kick-start its venture in the marine food segment, or any other investments in areas that may not complement to its current business of producing peanuts and other edible vegetable oils in Hunan Province, China.

While it does not require a fresh nod from its shareholders, XingHe said it will submit the relevant proposal to Bursa Malaysia and seek regulatory approval to complete the private placement exercise, which is advised by TA Securities Holdings Bhd.

At the 12th annual general meeting on May 26, XingHe received the green light from its shareholders to issue new shares at any time within the next one year, the quantum of which must not exceed 10% of the total share capital.

As for the foray into the marine food processing, XingHe is teaming up with Jefi Aquatech Resources Sdn Bhd, a wholly-owned subsidiary of privately-held Jeenhuat Foodstuff Industries Sdn Bhd (Jefi).

On Oct 16, both Xinghe and Jefi incorporated a new 90:10 joint-venture company Xinghe Jefi Sdn Bhd, with a registered office address in Georgetown, Penang.

Established since 1961, Jefi, which specialises in food processing, is controlled by its managing director Tan Beng Chye with a 30% stake.

In addition, Jefi also manufactures a wide range of ready-to-eat foods and ready-to-drink beverages, exporting the products to the United States, Europe, Middle East and Pakistan.

At the midday break today, shares in the ACE-listed XingHe — controlled by its chairman Ma Hui Jun and her husband, managing director Ma Guoliang — was trading at six sen, with 1.02 million shares traded.