KUALA LUMPUR (Nov 23): Mercury Industries Bhd is exiting the auto refinish business, citing increasing challenges in the segment from the slowing domestic economy, uncertainties in the global economies and the weaker ringgit.

"Pursuant to the proposed disposal, the construction business will be the sole business of the Mercury Group," it told Bursa Malaysia via a filing today. It said the construction segment will continue to be the key contributor to its earnings, given the remaining order book of around RM144 million as at Sept 30, 2016.

Based on the unaudited nine-month financial period ended Sept 30, 2016, the construction business contributed RM3.76 million (55.35%) while the auto refinish business contributed RM3.03 million (44.65%) towards its profit after tax and minority interest (PATMI).

The company exits the auto refinish business by disposing of all its equity stake in Silverlight Prospects Sdn Bhd to Interglobal Dynasty Sdn Bhd for RM50.5 million.

An agreement has been inked between both parties to effect the disposal. It was deemed a related party transaction as its executive director and substantial shareholder Datuk Tiong Kwing Hee is also a director in Interglobal Dynasty.

Tiong has abstained and will continue to abstain from all deliberations and decision at board meetings relating to the matter as well as voting in the upcoming extraordinary general meeting.

The auto refinisher product manufacturer cum construction outfit said the disposal could unlock its investment in the auto refinish segment and the proceeds will provide it with immediate cash flows to fund working capital and repay its bank borrowings.

After the corporate exercise, its net gearing will fall to 0.03 times from 0.54 times as at Dec 31, 2015, read the filing.

Mercury's total cost of investment in the Silverlight Group, which was made from 1989 to 2010, is about RM26.43 million. The unaudited consolidated net assets (NA) of the Silverlight Group as at Sept 30, 2016 is approximately RM38.36 million, the filing revealed.

"Based on the sale consideration of RM50.5 million against the unaudited consolidated NA of the Silverlight Group as at Sept 30, 2016 of approximately RM38.36 million and estimated expenses of RM0.85 million, we expect to record a gain on disposal of approximately RM11.29 million from the proposed disposal," it added.

Barring any unforeseen circumstances, the disposal is expected to be completed in the second quarter of 2017.

Shares in Mercury closed down 13 sen or 8.72% at RM1.36, valuing it at RM54.64 million.