Thursday 30 May 2024
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This article first appeared in The Edge Malaysia Weekly on May 3, 2021 - May 9, 2021

THE restructuring mode in the listed entities controlled by businessman Datuk Siew Ka Wei continues, with the latest being Ancom Bhd’s proposed purchase of all the assets and liabilities of Nylex (Malaysia) Bhd.

The latest transaction values Nylex — whose business is anchored in chemical-related activities, including ethanol — for RM179.3 million, or RM1 per share. Ethanol is still a much sought-after chemical as it is the key ingredient in the production of sanitisers.

For the investing fraternity, the Ancom-Nylex deal does not come as a surprise. In fact, it has been long speculated, going back to the late 1990s. This is because Ancom derives most of its income from Nylex, which is involved in the industrial chemicals, polymer and logistics segments.

Putting it in perspective, 70% of Ancom’s revenue for the financial year ended May 31, 2020 (FY2020) came from the industrial chemicals division, which is under Nylex. It distributes a wide range of petrochemicals and industrial chemicals, as well as manufactures ethanol, phosphoric acid, adhesives and sealants.

Siew, who is executive chairman of Ancom, says the timing of the transaction was due to several factors, including adding shareholder value. “Everything depends on timing, the size and the added value of the businesses. There are many things that need to be considered, including the shareholders’ interests as well as the staff and management’s interests,” he tells The Edge, when asked why the restructuring of the businesses was being carried out now.

Siew is also managing director of Nylex and executive vice-chairman at Ancom Logistics Bhd (ALB).

The structure of the deal will leave Nylex with a small amount of cash and a clean balance sheet. It will also be ripe for injections of assets.

Of the RM179.3 million that Ancom is forking out for Nylex in cash and shares, a sum of RM15 million will be retained in the latter to facilitate the acquisition of a new core business for it to maintain its listing status on the Main Market of Bursa Malaysia. The remaining RM164.3 million will be distributed to Nylex shareholders, with the net distribution amount totalling 91.63 sen per share in the form of a cash distribution of 39.26 sen and new Ancom shares to be issued at RM1.50 each.

The shares of Ancom and Nylex were last traded at RM1.68 and 90.5 sen respectively before the deal was announced last Wednesday. Year to date, Ancom is up 68.6% against Nylex’s gain of 34.8%.

As the holding company, Ancom owns 50.27% and 45.06% of Nylex and ALB respectively.

With the disposal of its core business, Nylex will be classified as a cash company, after which it has to submit a regularisation plan to the Securities Commission Malaysia within the next 12 months to decide on its future business direction.

It will be interesting to see whether Siew will inject any of his assets into Nylex or look for a new core business. He owns the Malay Mail online platform in his personal capacity.

While declining to comment on Nylex’s potential new core business, Siew stresses that its listing status will be maintained. “There is a huge value in the listing status,” he says.

Investment bankers are already speculating about another corporate exercise in the offing involving Nylex.

“It will be a sought-after vehicle for anyone wanting to inject their assets and get a listing. The upside for Nylex shareholders will depend on what is injected into the company in future,” says an investment banker.

To get the deal done, both Ancom and Nylex will have to seek the approval of their shareholders.

With Nylex’s share price trading below RM1 since October 2017, its shareholders may consider accepting the offer. Upon completion of the exercise, Ancom will continue to hold 50.27% of Nylex.

Nylex was in the red for FY2019 and FY2020, with a net loss of RM3.3 million and RM23.2 million respectively, before returning to the black with a net profit of RM7.91 million for 9MFY2021 ended Feb 28, 2021, from a net loss of RM4.53 million in the same period a year earlier.

Under its polymer division, the company has two manufacturing plants — in Shah Alam, Selangor, and Surabaya, Indonesia — according to its annual report.

Deal seems favourable for Ancom shareholders

For Ancom shareholders, the acquisition of Nylex’s business seems to be a good deal as the consideration is at a 67% discount to Nylex’s net tangible assets of RM1.67 per share as at end-February. This is despite a dilution in Ancom shareholders’ interests as Nylex shareholders will hold 11.41% of Ancom upon completion of the deal.

Now that it has full control of Nylex’s assets and businesses, the group will have greater flexibility to plan and decide on its business strategy, says Ancom.

Ancom’s net profit jumped more than sevenfold to RM16.33 million for 9MFY2021 from RM2.10 million previously. It slipped into the red in FY2020 with a net loss of RM9.7 million.

Last July, Ancom proposed a restructuring exercise by moving ALB’s business, including Synergy Trans-Link Sdn Bhd, to Nylex. Synergy Trans-Link provides transport and related services as well as builds, owns, operates, leases and manages chemical tank farms and warehouses.

Concurrently, ALB announced the takeover of S5 Holdings Inc, which provides integrated security IT solutions to governments, that would eventually see a backdoor listing of S5 via ALB.

“[The S5 deal] is ongoing and still under negotiation. It depends on the terms and conditions. We will try to finalise it as soon as possible, but it has not been done yet,” says Siew.


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