KUALA LUMPUR (Sept 12): Hong Seng Consolidated Bhd, which engages in the business of healthcare, financial services, and glove manufacturing, has scrapped a plan to sub-lease a part of an industrial land in Prai Bulk Cargo Terminal, Penang from Penang Port Sdn Bhd (PPSB). Measuring three acres, the sub-lease was supposed to be for a period of 20 years for a total rental payment of RM8.53 million.
However, Hong Seng said it has reached an agreement to terminate the sub-lease of the land with PPSB, which was planned for an integrated logistics services project, as the group is in the midst of renegotiating with the Northern Corridor Implementation Authority (NCIA) on the alternative utilisation of the land and/or revision of the terms of the agreement.
This follows a decision to suspend the development of a proposed nitrile butadiene latex (NBL) manufacturing plant in Kedah Rubber City.
In a bourse filing on Tuesday, Hong Seng said that initially, its wholly owned subsidiary Hong Seng Industries Sdn Bhd had intended to build and operate the NBL manufacturing plant in Kedah Rubber City. NBL is the raw material used to produce nitrile gloves.
Pursuant to the Kedah Rubber City NBL project, Hong Seng’s wholly owned subsidiary HS Petchem Logistics Sdn Bhd had planned to build storage tank facilities to store feedstocks such as butadine and acrylonitrile petrochemicals, which are the raw materials required for the manufacturing of NBL and providing logistics services for the supply of feedstocks to the NBL manufacturers on the land and its adjoining land measuring four acres.
“However, the group has made a strategic decision to suspend the development of the KRC NBL project due to various factors including project requirements, funding requirements and external factors beyond the group’s control, such as the current weak market sentiment regarding the glove industry, capital raising needs and inflows of private and foreign investments,” Hong Seng explained.
Thus, the decision to terminate the sub-lease of the land with PPSB for the integrated logistics services project.
“These strategic moves were taken after considering the financial challenges, market uncertainties, risk mitigation and potential opportunities and with the objective of minimising further costs, ensuring financial stability, and reallocating resources to explore alternative growth prospects, while maximising overall shareholders’ value."
Nevertheless, Hong Seng said it is now renegotiating with NCIA on the earlier terms of the agreement in relation to the Kedah Rubber City NBL project and to explore alternative utilisation of the land.
“The group is still in the midst of renegotiating with NCIA on the alternative utilisation of the land and/or revision of the terms of the agreement,” it added.
“Further announcement on the outcome of discussion with NCIA regarding the alternative utilisation of the land and/or revision on terms of the agreement will be made in due course.”
Meanwhile, HS Petchem Logistics has received a letter of termination from PPSB on Monday (Sept 11) to terminate the letter of offer and the underlying sub-lease, according to Hong Seng. HS Petchem Logistics had paid a refundable security deposit of RM61,914 and first initial payment of the sublease consideration of RM111,445.20 upon execution of the letter of offer.
Pursuant to the termination, PPSB has agreed to forfeit 50% of the deposit and will refund the remaining 50% totalling RM86,679.60 to HS Petchem Logistics within 30 days.
“The termination is not expected to have any material effect on the group’s earnings, net assets and gearing for the financial period ending March 31, 2024,” said Hong Seng.
As of 12.30pm on Tuesday, Hong Seng shares ended down 0.5 sen or 10% at 4.5 sen, giving it a market capitalisation of RM229.9 million. The stock’s share price is down 79.6% so far this year.