KUALA LUMPUR (May 13): Hiap Teck Venture Bhd has proposed to lend RM140 million to its 35%-owned associate, Eastern Steel Sdn Bhd, as part of a RM400 million sum that Eastern Steel is looking to raise for its working capital retirements.

The group may also be required to provide corporate guarantees and indemnities proportionate to its shareholding in Eastern Steel, Hiap Teck said in a stock exchange filing today.

Eastern Steel's largest shareholder is Shanxi Jianlong Industry Co Ltd with a 60% stake, while Chinaco Investment Pte Ltd owns the remaining 5% stake in the Chinese company.

Jianlong had emerged as a strategic partner in Eastern Steel in 2018 as part of a turnaround plan to revive the joint venture company's operations.

Eastern Steel's working capital requirements include the purchase of raw materials for its production, including iron ore, coking coal, limestone, manganese, anthracites and scrap, among other things, Hiap Teck said.

Hiap Teck must obtain approval of its shareholders at an extraordinary meeting to be convened, as the proposed provision of financial assistance is more than 5% of its net tangible assets.

"The proposed provision of financial assistance (to Eastern Steel) is expected to contribute positively to the future earnings of the group upon realisation of the use of facilities for its working capital purposes," Hiap Teck said.

However, the group will be required to assume Eastern Steel's debt obligations based on its corporate guarantees in the event that Eastern Steel does not meet its debt obligations.

As at May 10, Eastern Steel does not have any bank borrowings.

Shares in Hiap Teck closed down 2 sen or 7.69% at 24 sen today, leaving the group with a market capitalisation of RM322.6 million.