PETALING JAYA: A steel company from China is taking another step closer to being a white knight for beleaguered Perwaja Holdings Bhd.
Perwaja, which is a Practice Note 17-classified company due to its financial shortcomings, and China’s Tianjin Zhiyuan Investment Group Co Ltd will sign a conditional master framework agreement today to “revive and transform” the Kemaman plant.
The signing of the agreement would follow an earlier memorandum of understanding (MoU) on May 8 that was not attended by Perwaja’s major shareholder Tan Sri Abu Sahid Mohamed.
The presence of Abu Sahid, who has a 63% stake in the company, would be clear indication if he endorsed the deal, said a dealer.
“His presence, given that he is a major shareholder with a very substantial stake, will help increase market confidence in this corporate deal,” an observer said.
Investors would also get a better idea of the entry cost of Zhiyuan Investment into Perwaja.
After the signing of the MoU on May 8, Abu Sahid had told StarBiz that he did not know if this (entry of Zhiyuan Investment) was a “done deal”, adding that it was just an MoU.
During the MoU signing ceremony, it was annouced that Zhiyuan would inject some RM300mil into Perwaja that would be used to revive the operations of the plant that has ceased operations since August 2013.
In the first part of the plan, Zhiyuan would invest no less than RM100mil to restart Perwaja’s existing operations. Of the RM100mil, RM30mil would be in the form of a lease depository for the leasing of Perwaja’s land.
Zhiyuan would thereafter invest more money to bring in new machinery, and modify Perwaja’s existing ones so that it could venture into making semi-finished alloy products.
Zhiyuan had earlier said it intended to see the plant producing 400,000 tonnes of alloy per year in the three to six months after the completion of the deal.
Eventually, the plan was for Perwaja to be repositioned as a stainless steelmaker, producing up to 800,000 tonnes of alloy annually.
The Zhiyuan Group is a diversified business operating in China and abroad and has business interests in industries such as minerals, chemicals, alloys, new materials, construction materials, commercial real estate, logistics and international trading.
It has more than 2,000 employees with over 50 branches and subsidiaries mainly in China, Hong Kong, Singapore, Australia, South Africa, Mexico and Canada.
The plans are also subject to the approval of the regulators and Perwaja’s creditors.
Perwaja’s total debt stands at RM2.2bil and it has many stakeholders to answer to. Its cumulative losses recorded RM1.9bil as at its second quarter ended Dec 31, 2014.
The book value of its Kemaman plant and land was worth RM51.3mil as of June 30, 2014, while the group’s total book value stood at RM1.23bil.
The plan comes at a time when the steel industry is struggling with a continued glut in supply globally and with stiff competition depressing prices of the raw material.
Perwaja’s share price, which had been depressed prior to this news, has climbed multi-fold from a historial low of 4.5 sen on Dec 30, 2014 to close at 28 sen yesterday.
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