This article first appeared in The Edge Malaysia Weekly on January 13, 2025 - January 19, 2025

Hong Seng Consolidated Bhd (KL:HONG­SENG) proposed a private placement to raise gross proceeds of RM4.6 million, based on an illustrative price of 0.9 sen per share, in October 2024.

In a filing with Bursa Malaysia last Thursday, the company disclosed that it would allocate RM2.5 million to modify glove production lines and RM1.95 million to purchase raw materials for the manufacturing of gloves.

Raising money via a private placement to buy raw materials raises questions and does not speak well of the company’s core business and cash flow. How long would the sum of RM1.95 million last if used for the purchase of raw materials? Does it mean Hong Seng may need to raise more money to support its glove business?

The company is also involved in moneylending activities and has ventured into seafood trading.

While it needs to raise funds to buy raw materials, Hong Seng entered into an agreement with Velocity Capital Partner Bhd (KL:VELO­CITY), formerly known as CSH Alliance Bhd,  last July to take over the latter’s parcel of land and factory in Sungai Petani, Kedah, that it is renting now for glove manufacturing. Hong Seng is paying RM45.25 million cash for that acquisition.

In addition, the company paid RM60.3 million for a 32.61% stake in Classita Holdings Bhd (KL:CLASSITA) in July 2023, making it the single-largest shareholder of the lingerie maker. The value of its block of shares is substantially lower now as Classita’s share price has more than halved to six sen from its entry price of 15 sen.

At the peak of the pandemic, Hong Seng’s cash and cash equivalents stood at nearly RM158 million at end-September 2021. That year, it held a groundbreaking ceremony to kick off the construction of a nitrile butadiene latex (NBL) plant in Kedah that would have cost RM3 billion.

Its cash flow statement showed that the company received RM164.7 million in proceeds from the issuance of shares for the quarter ended Sept 30, 2021.

The NBL plant project has been “suspended” for various reasons, according to Hong Seng, including funding requirements and external factors beyond its control. The suspension resulted in the company forfeiting a portion of its deposit, amounting to RM86.6 million, that was paid to Penang Port Sdn Bhd as Hong Seng had to terminate the sub-lease of industrial land, measuring about three acres, at Prai Bulk Cargo Terminal in September 2023. The land had been earmarked for the building of storage tank facilities to support the proposed NPL plant.

Instead of generating billions of ringgit in revenue, Hong Seng’s glove manufacturing venture has proved to be unfruitful. How will the company address the situation?

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