This article first appeared in The Edge Malaysia Weekly on March 19, 2018 - March 25, 2018

FLAT steel player YKGI Holdings Bhd is in talks to sell its manufacturing plant in Klang, sources familiar with the matter tell The Edge.

It is understood that two companies may be eyeing the plant and are in the process of doing due diligence and negotiating a deal.

However, officials of YKGI and the buyers are tight-lipped after having signed a non-disclosure agreement that prevents them from discussing the deal.

“They won’t talk but the market knows,” says a banker familiar with the deal.

A quick look at YKGI’s annual report indicates that the company had about 25 acres of land and buildings in Kapar, Klang, with a net book value of RM83.18 million as at end-2014. Now, about three years down the road, these could be worth much more.

According to the annual report, the Klang land houses a manufacturing plant that processes hot rolled coils into hot rolled pickled and oiled coils, cold rolled coils, galvanised coils and colour-coated coil, among others.

Another source reveals that both the buyers are majority-controlled by foreign companies but declines to name them. It is worth noting that several Japanese, Chinese and South Korean steel companies operate in Malaysia.

One name that keeps cropping up is NS BlueScope Malaysia Sdn Bhd, a wholly-owned subsidiary of NS BlueScope Lysaght Singapore Pte Ltd, but the company’s officials could not be contacted for comment.

It is noteworthy that Japanese outfit Nippon Steel and Sumitomo Metal Corp controls 100% or 21.73 million of YKGI’s redeemable convertible preference shares, and also has a large stake in NS BlueScope. The 10-year preference shares were acquired for RM13 million in 2010.

According to RAM Ratings, NS BlueScope registered an after-tax profit of RM70.42 million on revenue of RM740.99 million in its year ended June 30, 2017.

YKGI, meanwhile, suffered a net loss of RM14.74 million on revenue of RM378.8 million in its financial year ended Dec 31, 2017. In FY2016, it incurred a net loss of RM9.96 million on revenue of RM399.62 million.

With news of YKGI selling its Klang plant circulating in the market, the stock has surged in recent months. It closed at 39.5 sen last Thursday, up 146% from early February. The stock has not hit such levels since 2014.

A market watcher, however, cautions that a chunk of YKGI’s gains from the sale of its land in Klang will likely be utilised to settle debts, which means there may not be much of a payout if and when the sale goes through.

As at Dec 31 last year, YKGI had cash and cash equivalents of RM42.2 million. On the other side of the balance sheet, it had long-term debt commitments of RM132.13 million.

Perhaps this sale should not come as a surprise. In August 2016, YKGI sold a 9.14-acre parcel — with a single-storey detached factory, double-storey production office, five-storey integral office building, guard house, refuse chamber and a pump house — to TG Medical Sdn Bhd for RM51.5 million.

The proceeds from the sale were used to pay suppliers, purchase raw materials, spare parts and consumables, and defray operating expenses.

If the sale of the second plot in Klang goes through, YKGI would be left with only 8.4 acres in Kuching where its galvanised iron manufacturing, downstream, hardware and building material businesses are located.

YKGI is owned by Marubeni-Itochu Steel Inc (26.78%) and the Hii family’s Yung Kong Co Bhd (15.34%).

If the sale of YKGI’s plant in Klang goes through, Mycron Steel Bhd will be the country’s only Malaysian-owned, controlled and operated flat steel manufacturing facility.

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