Wah Seong to sell Perai asset, possibly others too

This article first appeared in The Edge Malaysia Weekly, on January 29, 2018 - February 04, 2018.
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FOLLOWING a rationalisation, Wah Seong Corp Bhd has put up for sale an industrial asset in Seberang Perai, Penang, that is valued at close to RM90 million. And more assets may be identified for disposal over the next couple of years.

The oil and gas and industrial services group is selling a 24-acre leasehold parcel that houses a factory in the Prai Industrial Estate, making it the second industrial asset placed for sale in the past six months. Last July, the group sold a piece of leasehold land and a portion of another leasehold parcel — with a building and other structures — in Pahang to Axis Real Estate Investment Trust (Axis REIT).

“The factory (in Perai) is no longer operational. We announced to the market last year that we had consolidated our pipe manufacturing operation to our plant in Kota Kinabalu, Sabah,” Wah Seong’s head of investor relations and corporate communications, Ariesza Noor, tells The Edge when contacted.

“We have done a fair bit of rationalisation in terms of our operations and are focusing on our core business. As a result, there are opportunities to dispose of assets, some non-core, which makes good business sense,” she says when asked if the group was planning further asset disposals this year and next.

Should the group decide to sell then, it would consider an outright sale or a sale-and-leaseback option, depending on the asset, Ariesza adds, without identifying the assets that are likely to be sold.

The 126.55-acre Pahang parcel was sold to Axis REIT for RM155 million on a sale-and-leaseback basis. This means Wah Seong will pay a monthly rent of RM971,958.64 to Axis REIT and enjoy RM3 million in annual interest savings.

As for the Perai land, Wah Seong’s 2016 annual report indicates that the property is owned by subsidiary PPI Industries Sdn Bhd. The land measures 1,053,744 sq ft while the building has a built-up of 308,256 sq ft.

The land has a 99-year lease that expires in March 2115 while the factory on it was built 30 years ago. However, most parts of the existing building were built or extended 15 years ago.

As at Dec 31, 2016, the net book value of the asset was RM44.47 million. When asked how much Wah Seong hopes to get for the asset, Ariesza declines to provide a figure as that could undermine the bidding process. “We would want the market price for the land and the building,” she says.

Nevertheless, industry estimates put the price at between RM79 million and RM90 million. A valuer contacted by The Edge says industrial land in Penang Development Corporation (PDC) industrial parks in Batu Kawan and Penang Science Park North is for sale at RM40 psf while in the Prai Industrial Estate, the going price is generally between RM40 and RM45 psf for parcels with less than 50 years remaining on their lease. Because Wah Seong’s land still has 97 years left on the lease, it comes at a premium. The valuer feels that the price of the industrial property, inclusive of the building, could be between RM75 psf and RM85 psf.

The sale of the property is via expression of interest (EOI). Unlike a sale by tender, an EOI is non-binding — the parties have the option of not proceeding with the deal. The closing date for the bid is April 3. Real estate consultant Knight Frank Malaysia Sdn Bhd has been hired as the exclusive marketing agent.

When Wah Seong sold the factory in Pahang, it said the disposal was part of the group’s initiative to unlock and realise the capital appreciation of its assets and at the same time improve its working capital position. The sale provided the group with a net gain of RM97.7 million. The proceeds (RM155 million) are for working capital (RM50 million) and to pare down short-term borrowings (RM105 million). And in the process, Wah Seong will strengthen its balance sheet.

The group managed to reduce its gearing to 0.8 times as at Dec 31, 2017, from 1.18 times as at Dec 31, 2016.

With the sale of the Perai industrial land, Wah Seong hopes to further strengthen its balance sheet and focus on growing its core business, which is oil and gas and renewable energy.

In the nine months ended Sept 30, 2017, Wah Seong posted a net profit of RM47.06 million compared with a loss of RM29.98 million in the previous corresponding period. Revenue in the first three quarters was RM1.51 billion, up 59.86% from RM946.37 million in the previous year, thanks to a bigger contribution by the oil and gas segment.


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