KUALA LUMPUR (June 27): Loss-making CSH Alliance Bhd is buying investment holding company Hong Seng Frontier Sdn Bhd (HSF), the private vehicle of Hong Seng Consolidated Bhd’s group managing director Datuk Seri Teoh Hai Hin, for RM45.25 million, cash.

CSH Alliance said it has inked the share sale agreement (SSA) with Teoh on Tuesday (June 27) and that it is buying HSF at a discount of 24% to its total adjusted net asset value of RM59.22 million as of May 31, 2023, in view of the fact that the acquisition will settle the RM32.5 million that HSF owes its wholly owned CSH Network Capital Sdn Bhd, a licensed moneylender.

“In view of this, the company and HSF intend to enter a settlement arrangement via the SSA to partially offset the purchase consideration pursuant to the SSA,” CSH Alliance said in a bourse filing on Tuesday.

HSF, it said, is the beneficial owner “and has full benefit and interest” over a building comprising a factory, warehouse, office and a canteen that are erected on a 21,680 sq metre leasehold plot in the Bakar Arang Industrial Estate in Sungai Petani, Kedah.

The land’s registered proprietor is Perbadanan Kemajuan Negeri Kedah (PKNK) and the plot has been leased to HS Vision One Sdn Bhd (HSV) and charged to Public Bank Bhd for a loan facility to HSV.

HSF, however, has “full interest over the lease of the land pursuant to a sales and purchase of lease agreement dated May 31, 2023 entered with HSV,” CSH Alliance’s filing read.

“HSV is currently in the midst of obtaining consent from PKNK in relation to the SPA for the purpose of transferring the lease of the land in favour of HSF and is expected to deliver the original title deed free from any lien and encumbrances to HSF in the fourth quarter of year 2023,” the filing added.

The building on it has been rented out to a glove manufacturer as a production plant at a monthly rental of RM150,000, with tenancy to commence in July. CSH Alliance plans to continue with the tenancy following the acquisition, saying the property will be held with the intention to rent out for rental income and/or future capital gain.

“The total expected gross rental income from the tenancy in the first five years is RM11.40 million and the monthly rental for sixth year onwards will be determined upon the renewal of the tenancy by the parties,” said CSH Alliance, adding the tenancy is expected to yield an estimated average return on investment of 5% to the group.

The proposed acquisition would benefit the company, as this will result in it owing HSF’s assets at a lower price, said CSH Alliance.

“This will provide the group with an upside in terms of realisable value, should the group dispose off the property in excess of the price it currently has procured for the property through the proposed acquisition. In addition, it will enable CSH Group to fully recover the principal indebtedness owed by HSF,” it said, adding that the exercise will also provide an additional income stream to the group through HSF’s existing tenancy for the property.

The exercise is slated to be completed by the third quarter of this year.

CSH Alliance shares closed unchanged at four sen on Tuesday, with a market value of RM55.26 million.