KUALA LUMPUR (Feb 12): Dagang NeXchange Bhd (KL:DNEX) said an arbitrator has ruled against its units, DNeX Semiconductor Sdn Bhd and SilTerra Malaysia Sdn Bhd, in a dispute related to a shareholders’ agreement between the two firms and Tethystronics Technologies Company Ltd (TTCL).

The final award received from the Asian International Arbitration Centre (AIAC) was in favour of TTCL, said DNeX in a filing with Bursa Malaysia on Wednesday.

TTCL is the owner of Mimastronics Technologies Company Ltd (Mimas), which owns a 40% stake in SilTerra. The remaining 60% is owned by DNeX. Meanwhile, TTCL’s ultimate owner is Beijing Integrated Circuit Advance Manufacturing and High-End Equipment Equity Investment Fund Centre (Limited Partnership), better known as CGP.

The suit revolves around DNeX exercising its rights as a majority shareholder of SilTerra to appoint directors to SilTerra’s board via members' written resolutions (MWR), a move which was contested by TTCL.

"In particular, TTCL claims DNeX Semiconductor and SilTerra breached the agreements on SilTerra’s board structure by unlawfully appointing additional directors through a members’ written resolution," said DNeX in its filing.

DNeX said the arbitration costs associated with the award will not have a material financial impact on its earnings for the financial year ending Dec 31, 2025.

The group said it will review the AIAC’s decision with its legal counsel.

“Notwithstanding the above, SilTerra remains operational and business continues as usual,” it added in the filing.

Separately, a DNeX spokesperson said AIAC’s decision will not impact the operations of SilTerra and ownership of the company.

"There are no changes to the day to day operations of SilTerra Malaysia Sdn Bhd. The arbitration does not impact the ownership of the company," the spokeperson said.

According to the spokesperson, DNeX had nominated four additional directors as allowed by the constitution of SilTerra, but this was opposed by CGP which took the position that the composition of directors must follow the shareholders’ agreement.

"Hence today’s decision states that the current board composition of SilTerra remains unchanged at a total of five directors,” the spokesperson said, adding: "Nonetheless, the more important arbitration is still ongoing with regards to the investment by CGP into DNeX Semiconductor."

In November 2022, DNeX Semi served a notice of arbitration to commence arbitration proceedings against Mimas.

DNeX and CGP Fund have committed to a capital injection of at least RM200 million by way of subscribing for new shares to be issued by SilTerra. Based on DNeX’s 60% stake, the capital injection by DNeX will amount to about RM120 million.

Both parties sought to opt for the issuance of irredeemable convertible preference shares (ICPS) in DNeX Semiconductor, amounting to RM100 million, to be issued to by Mimas. This would result in Mimas holding a 33% stake in DNeX Semi.  

The point of contention is whether prior approval is needed from the Ministry of Investment, Trade and Industry (Miti) for the proposed investment.

Mimas is of the view that such approval was not required and maintains that the shareholders agreement and subscription agreement are valid and enforceable.

“Vide Miti’s letter dated Feb 28, 2022, DNeX and CGP learned that prior approval from Miti was required in relation to the proposed investment,” said DNeX in a filing back then.

“DNeX and DNeX Semiconductor consider such approval as necessary, more so in light of the terms and conditions of the shareholders’ agreement and subscription agreement which provide for Mimas becoming a shareholder upon issuance of the ICPS and not their conversion. If so, this puts the [manufacturing] licence, and thus the operations of SilTerra, at risk,” it added.

DNeX's shares price settled one sen or 2.63% lower at 37 sen on Wednesday, bringing the group a market capitalisation of RM1.29 billion.

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