WZ Satu buys SILK Highway for RM368mil

SILK Highway, an urban road that serves the south eastern corridor of the Klang Valley, is one of the 12 highways in the Valley that began to charge higher toll rates in October last year.

KUALA LUMPUR: Silk Holdings Bhd (SHB) has signed a heads of agreement to dispose its entire equity interest in tolled highway concessionaire Sistem Lingkaran-Lebuhraya Kajang Sdn Bhd (SILK) to bauxite mining and construction firm WZ Satu Bhd for RM368mil.

In a filing with Bursa Malaysia, SHB said the disposal consideration would be settled by RM239.25mil in cash and RM128.75mil via 125 million new 50-sen shares in WZ Satu at an issue price of RM1.03 each.

The issue price of RM1.03 per WZ Satu share represents a discount of 4.63% over the volume weighted average market price up to May 31 of RM1.08. The 125 million new shares, based on the current number of WZ Satu shares issued (333.89 million), would give SHB about 27% equity interest WZ Satu.

WZ Satu Bhd (formerly Weng Zheng Resources Bhd) is an investment holding company whose subsidiaries are involved in civil engineering and construction, the oil and gas industry, mining, and manufacture of cold drawn bright steel.

SILK, meanwhile, holds the concession for the 37km Kajang Traffic Dispersal Ring Road. Under the original concession agreement signed on Oct 8, 1997, the Government gave it the right to operate and maintain the highway for a 33-year period. Through a 2001 supplemental agreement, the concession period was further extended to a total of 36 years, ending on July 31, 2037.

This is Silk Holdings' second attempt to sell SILK in less than two years. IJM Corp's unit Road Builder (M) Holdings Bhd had in November 2014 aborted a proposed RM395mil acquisition of SILK as certain conditions precedent could not be fulfilled.

WZ Satu will have 90 days or or any extended period as the parties may mutually agree on later to complete its due diligence exercise on SILK.

WZ Satu told Bursa Malaysia that the proposed acquisition would not result in a significant change to the company’s business direction, as WZ Satu planned to acquire SILK together with other co-investor(s) to be identified, on the basis that WZ Satu would be the majority shareholder.

“It is the intention of WZ Satu at this juncture that the cash portion of the consideration will be substantially funded directly by the co-investor(s) and the remaining portion will be funded by the company’s internal cash and/or fund raising which may include a rights issue and/or placement of new shares,” it added.

On the rationale for the disposal, SHB said its board believed the exercise would allow the company to unlock the value of its investment in SILK whereby SHB would obtain cash and new WZSB shares.

The issue price and/or number of consideration are subject to an adjustment if WZ Satu carries out any corporate exercise that financially affects the company’s value prior to the signing of the definitive agreement.

SHB shares gained 4.5 sen to close at 46 sen on Wednesday, with 11 million shares traded, while WZ Satu shares added 3 sen to RM1.17 with 706,400 shares done.