This article first appeared in The Edge Financial Daily on January 3, 2019

KUALA LUMPUR: XingHe Holdings Bhd, which aborted the share placement to raise working capital of RM18.3 million in July last year, is now buying a prawn farm in Tawau, Sabah, for RM100 million cash.

The price tag is nearly equivalent to the company’s market capitalisation of RM103 million based on yesterday’s closing of four sen. Shareholder approval is not required for the acquisition.

The China-based edible oil producer announced to Bursa Malaysia yesterday that its wholly owned subsidiary XW Aquaculture Sdn Bhd had on Dec 31, 2018 entered into a sale and purchase agreement and an assets sale and purchase agreement with Pegagau Aquaculture Sdn Bhd for the acquisition.

XingHe explained in the filing to Bursa that the prawn farming business “would supplement its edible oil operations in China, which is currently facing production curbs due to China’s campaign against environmental pollution in the smog-prone region of northern China, where the group’s production plant is located (Neihuang County, Henan Province)”.

The company slipped into the red for the financial year ended Dec 31, 2017 (FY17) with net loss of RM6.78 million while revenue halved to RM357.46 million from RM768.05 million the year before.

For the nine month period ended Sept 30, 2018, XingHe’s net loss widened to RM14.48 million, while revenue dropped to RM40.78 million from RM314.3 million a year ago.

Like other China-based firms listed on Bursa Malaysia, XingHe is cash rich. Its cash balance stood at RM362.02 million. However, the company has yet to decide whether to raise debt to fund the acquisition. “Further details on the sources of funding will be announced in due course,” said XingHe.