KUALA LUMPUR (July 3): Lion Industries Corp Bhd has proposed to acquire the flat steel assets including a manufacturing plant in Banting, Selangor from Megasteel Sdn Bhd for RM537.73 million, as part of its plans to expand into the flat steel business.
Lion Industries is currently involved in the manufacturing of long steel products comprising bars and wire rods, which are used in the construction, fabrication and manufacturing industries. It said the proposed acquisitions will widen its steel product base to include the manufacturing of flat steel products.
In a filing with Bursa Malaysia, Lion Industries said the proposals are also part of a debt settlement scheme to be undertaken by Megasteel, with the latter's lenders and creditors. The proposals constitute a related party transaction as both Lion Industries and Megasteel have a common substantial shareholder in Tan Sri William Cheng, who is the managing director of Lion Industries.
Lion Industries said it and Megasteel has today entered into a memorandum of understanding for the asset acquisition, which comprises an existing manufacturing plant that has a production capacity of 3.2 million tonnes per year of hot rolled coils and 700,000 tonnes per year of cold rolled coils. The proceeds will be used to pay Megasteel's secured lenders.
It noted that as the operations of the Megasteel's flat steel mill has temporarily ceased operations since March 2016, an estimated restart-up cost of up to RM35 million may be incurred to resume operation which includes cost for the replacement of parts, testing of machinery and hiring of manpower.
"Such commitments will be funded by Lion Industries Group's internal funds and/or bank borrowings, details of which have yet to be ascertained at this juncture," the group added.
Lion Industries reiterated that the proposed acquisitions are an arm’s length transaction negotiated by the group. "The purchase consideration for the encumbered assets is RM537.73 million as compared to the net book value of the assets of the vendor as at June 30, 2017 and April 30, 2018 of RM1,947.86 million (audited) and RM1,839.14 million (unaudited), respectively," it added.
Lion Industries' indirect wholly-owned subsidiary Oriental Shield Sdn Bhd has also entered into a tri-partite agreement with Tenaga Nasional Bhd (TNB) and Megasteel, where Oriental will pay RM35.8 million for TNB to supply electricity to the group for its steel mill operations in Banting including the proposed settlement of TNB’s entire claim against Megasteel.
The total funding required to implement the proposals amounts to RM638.04 million including associated costs in relation to the proposals of RM31.51 million. The source of funding for the proposals will come from proceeds from the disposal of certain assets, internal funds and/or bank borrowings of the group, the announcement added.
Lion Industries believes that the proposals are expected to contribute positively to the future earnings of the group after having considered the outlook of the steel manufacturing industry in Malaysia.
The submission of the application to the relevant authorities for the proposals will be made within two months.
Mercury Securities Sdn Bhd has been appointed to advise the non-interested shareholders by setting out its views on the proposal in an independent advice circular to be despatched to shareholders in due course pursuant to an extraordinary general meeting to be convened.
"Barring any unforeseen circumstances and subject to the fulfillment of all conditions, the proposals are expected to be completed by the fourth quarter of 2018," said Lion Industries.
Lion Industries shares closed down 0.5 sen or 0.62% at 80 sen today, with 1.43 million shares done, bringing a market capitalisation of RM544.65 million.