KUALA LUMPUR: Southern Steel Bhd and Belgium-based steel wire producer NV Bekaert SA are forming a joint venture for the manufacture and sale of steel wires in the Asean region.

Under the agreement, Southern Steel and NV Bekaert are to inject their respective steel wire businesses in Malaysia and Indonesia to a joint venture company (JVC), which is to be based in Singapore, for a total consideration of US$44.6 million (RM136.9 million).
According to Southern Steel’s announcement to Bursa Malaysia yesterday, the company and NV Bekaert will hold about 67% and 33% respectively of the enlarged share capital of the JVC after the injection of businesses.

However, concurrently with the completion of injection of businesses, Southern Steel shall sell an approximate 22% stake in the enlarged JVC to NV Bekaert, resulting in the company eventually holding a minority interest of 45% in the JVC, with NV Bekaert holding the majority 55% stake.

Southern Steel is to inject into the JVC its wholly-owned subsidiaries Southern Speciality Wire Sdn Bhd and Southern Wire Industries (M) Sdn Bhd, together with its wholly-owned unit, Cempaka Raya Sdn Bhd.

NV Bekaert will inject its entire galvanised and multi-coated wire business in Indonesia currently undertaken by its Indonesian subsidiary, PT Bekaert Indonesia.

The main point of the JV agreement is that the JVC will have the exclusive right to manufacture and sell the specified steel wire products in the Asean region.

Southern Steel and NV Bekaert have also agreed that during the term of the JV agreement and for two years following the termination as shareholders of the JVC, neither party shall engage, directly or indirectly, in the manufacture or sale of the specified steel wire products in the region.

NV Bekaert shall grant to the JVC an exclusive licence to use and exploit certain of its technology to manufacture, sell, market and distribute the specified steel wire products in the Asean region in consideration of royalty of 1% on the net annual sales of the products manufactured and sold by the JVC or its subsidiaries.

On the rationale for the JV, Southern Steel said it “will provide the Southern Steel Group the opportunity to expand its steel wire manufacturing and sale business and to jointly promote the Southern Steel and NV Bekaert brand in the Asean market”.

According to the announcement, the proposed JV is subject to the approval of the Malaysian Investment Development Authority for the sale and transfer of the Southern Steel units to the JVC. It does not require the approval of the shareholders of Southern Steel.

This article appeared in The Edge Financial Daily, May 10, 2012.