KUALA LUMPUR: In a surprise move, Emas Kiara Industries Bhd has proposed to sell its core business, technical textiles manufacturing, for RM100 million cash to US-listed Royal Ten Cate N V.
By doing that, the company will have no core activities going forward but sitting on a net cash pile of RM36.2 million or 42.7 sen per share.
In an announcement to Bursa Malaysia, Emas Kiara said after the asset sale, the company would become a cash company under the Practice Note (PN) 16 category of Malaysian listing regulations. At the same time, the firm, in the absence of a core business, could be placed under the PN17 category, it said.
“The board shall deliberate on whether to return all or part of the cash retained in the company to shareholders and/or to utilise all or part of the cash retained towards new investment opportunities that may arise,” the company said.
The textile manufacturer announced yesterday the company and a few of its subsidiaries had entered into a sale and purchase agreement with Tencate Geosynthetics Asia Sdn Bhd to divest their geosynthetic manufacturing business comprising land and buildings, plant and machinery, equipment, spare parts, intellectual property rights and goodwill.
Emas Kiara said proceeds from the sale which included industrial real estate, machinery, and intellectual property would be used to repay borrowings and finance its capital needs.
“After the completion of the proposed disposal, the vendors shall continue to fulfil their open-order obligations and will over time turn their receivables and inventories into cash. Consequently, the net asset value of Emas Kiara shall eventually comprise mainly cash.
According to the announcement, the sale comprises RM78 million in properties, plant and machinery, equipment and spare parts, all at market value, plus RM28 million in goodwill.
The sale will raise Emas Kiara’s net assets from RM77.5 million or 92 sen per share, to RM105.9 million or RM1.26 per share.
Emas Kiara had borrowings of RM82.8 million as at Oct 31 this year, it said. The financial statement ended June 30 showed gross cash of about RM19 million.
As part of the disposal, Emas Kiara had also entered into a seven-year distributor agreement with Royal Ten where the Malaysian company will become a distributor for Royal Ten’s technical textiles in India.
The latest corporate exercise in Emas Kiara follows the disposal of the company’s 80% subsidiary Emas Kiara Vietnam Joint Venture Co (EKV) for RM950,000 in March this year to Automation Technology and Robot Joint Stock Co.
EKV, a joint venture entity between Emas Kiara and Vietnam-based B&T Trading & Construction and Technological Application Co Ltd, was formed via the issuance of an investment licence by the Authority Board of Management for Hanoi Manufacturing and Industry in 2005.
The collaboration was established to manufacture and sell geosynthetic products, technical textile, and polymer products in global markets. EKV owns a factory in Hanoi but the facility has not begun operations.
Shares of Emas Kiara traded at 92 sen before the counter was suspended last Wednesday. The stock has rallied 92% from a low of 49 sen. Trading of the stock resumes today.
This article appeared in The Edge Financial Daily, November 16, 2010.