"The Proposed Disposal will enable Heng Huat to use the proceeds to mainly repay its bank borrowings and enhance its working capital to facilitate its operating activities.
"The reduction of its bank borrowings will enable Heng Huat to reduce its gearing, improve its future borrowing ability and improve its cash flow position," it said in a filing with Bursa Malaysia.
According to the filing, the group's sub-subsidiary HK Kitaran Sdn Bhd entered a sales and purchase agreement with SBJ Property Sdn Bhd to dispose of the property at a RM6mil or a 21.43% discount to its market value, as appraised by a valuer.
The disposal consideration is also less than the group's original cost of investment in the properties, which was RM24.36mil. Heng Huat's investment in the properties goes back to June 2010, when it purchased the first of the five parcels of land.
According to Heng Huat, the trade dispute between China and the US as well as the Covid-19 outbreak have impacted its manufacturing operations and financial performance.
The group also revealed that its request for a six-month moratorium on borrowings has been rejected by a financial institution. Of the proceeds from the disposal, RM11.7mil will go towards repaying the borrowings.
This will leave the group with borrowings of about RM23.1mil, of which it has managed to secure a six-month deferment from other financial institutions.
Meanwhile, the remaining proceeds from the disposal amounting to RM10.3mil will go towards the group's working capital.
"The Board is of the opinion that the discount is justifiable and had agreed to the discount after having considered the immediate cash flow requirements of the Heng Huat Group for the repayment of bank borrowings and to fund its working capital," said the group.
It added that no other potential buyers for the property had been found while the transaction value of the Penang property market had decreased 15.3% in 2019 compared to 2018.
For the quarter ended Dec 31, 2019, Heng Huat recorded a net loss of RM15.24mil on revenue of RM16.88mil. The group recorded a loss per share of 4.49 sen during the period.
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