KUALA LUMPUR: Ailing steel producer Perwaja Holdings Bhd has identified China-based alloy manufacturer Zhiyuan Investment Group Co Ltd for a possibility of capital injection and to revive the former’s steel operations in Kemaman, Terengganu.

In an announcement to Bursa Malaysia yesterday, Perwaja (fundamental: 0; valuation: 0) said it had entered into a memorandum of agreement (MoA) with Zhiyuan for the latter to conduct a feasibility study on a proposal to invest in the company.

Under the MoA, Zhiyuan could also propose to Perwaja a business transformation model for the restructuring and revival of the latter’s steel operations in Kemaman, which have stalled since August 2013.

This could involve transforming Perwaja’s operations into the production of premium metal steel-related products, which may include the acquisition of Zhiyuan’s existing premium metal steel operations.

According to Perwaja, Zhiyuan shall conduct and complete the feasibility and technical study of the Kemaman operations, and a due diligence exercise on Perwaja’s financial affairs within two months from the date of the MoA.

“Zhiyuan is desirous to expand its businesses to Malaysia, and to conduct a feasibility study with a view to revive, operate and/or transform the Kemaman plant in particular, as part of its global business expansion plan,” Perwaja said.

Financially-stricken Perwaja was designated as a Practice Note 17 outfit in November 2013. Its banking facilities were frozen and its plant forced to shut down after Tenaga Nasional Bhd and Petroliam Nasional Bhd cut off the electricity and gas supply to the plant.

The group accumulated total liabilities of RM2.23 billion as at Sept 30 last year, translating into net liabilities per share of RM1.55.

Prior to the MoA announcement yesterday evening, Perwaja’s share price soared 40% or three sen to end at 10.5 sen, giving it a market capitalisation of RM58.8 million.

In tandem with Perwaja’s share price rise, its parent Kinsteel Bhd also gained 7.14% to settle at 15 sen yesterday, translating into a market capitalisation of RM157.4 million.

Kinsteel, controlled by Tan Sri Pheng Yin Huah, recently trimmed its stake in Perwaja to 31.25%, down from 37.34% on Nov 28 last year. Pheng owns 30.67% of Kinsteel.

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This article first appeared in The Edge Financial Daily, on February 12, 2015.