This article first appeared in The Edge Financial Daily, on December 31, 2015.
KUALA LUMPUR: Ho Hup Construction Co Bhd has gained entry into the granite quarrying business, via the acquisition of a company with quarrying rights, for RM2 million cash.
In a filing with Bursa Malaysia yesterday, Ho Hup said its indirect 70%-owned subsidiary, Ho Hup Ventures (Malacca) Sdn Bhd, has signed a share sale and purchase agreement with Ong Chin Cheong, Ong Chin Yet and Noor Azman Nordin for the acquisition of one million shares, representing the entire share capital, in Erakuasa Global Sdn Bhd (EGSB).
EGSB owns 75% equity in ACV-ICM Quarry Sdn Bhd (AIQSB), which owns the quarrying rights to a site measuring 102.3ha in Taboh Naning, Melaka. As such, the acquisition gives Ho Hup an effective 52.5% stake in AIQSB.
The other equity partner in AIQSB is ICM Industries Corp Bhd, which is wholly-owned by Kolej Teknologi Islam Melaka Bhd (KTIMB), which is in turn owned by the Melaka state government.
KTIMB is the owner of the quarry land and has granted a power of attorney to ICM on April 21, 2004 to deal with the quarry land, of which the lease expires on March 25, 2028.
In a statement yesterday, Ho Hup chief executive officer Datuk Derek Wong Kit-Leong said the group’s purchase of EGSB would support its needs as it is principally involved in construction, property development, and infrastructure — activities that are major consumers of ready-mixed concrete products.
“At the same time, we also see potential business opportunities, given the size of the quarry land and its proximity to major development projects in southern Peninsular Malaysia such as the Melaka Gateway, the extension of the runway at Melaka airport, the proposed Kuala Lumpur-Singapore high-speed rail, and possibly many more that have been identified under the memorandum of understanding between Melaka and Guangdong Province of China,” he added.
Ho Hup said quarrying serves as a strategic move to add to its ready-mix concrete division, where granite aggregate is a main raw material for the production of ready-mix concrete.
Ho Hup said its acquisition of EGSB will not bring any effect to its earnings for the financial year ending Dec 31, 2015, but it expects the quarrying venture will be a positive contributor once the business comes on stream.
As a post-completion obligation, Ho Hup is advancing a RM4.95 million judgement debt owing by AIQSB to Hong Leong Bank Bhd.
Ho Hup’s purchase of EGSB will add RM6.95 million to its borrowings, since it plans to finance the purchase entirely by debt.
As at Sept 30, Ho Hup had total borrowings worth RM99.92 million. Deducting the RM14.04 million cash it had, Ho Hup’s net gearing stood at 0.41 times. All things being equal, the purchase would increase the ratio to 0.44 times.