KUALA LUMPUR (April 22): After Singapore-based steel firm Green Esteel Pte Ltd’s emergence as the controlling shareholder of Southern Steel Bhd (KL:SSTEEL) earlier this year, the Malaysian group is now offloading a 55% stake in its steel wire mesh-making unit to Singapore-listed BRC Asia Ltd for RM61.05 million in cash.
Southern Steel inked an agreement with BRC Asia on Tuesday for the disposal of the 55% stake in wholly-owned unit Southern Steel Mesh Sdn Bhd (SSM), according to a bourse filing.
The deal is deemed a related-party transaction as Green Esteel is the controlling shareholder of both Southern Steel and BRC Asia, with a 51% stake in Southern Steel and a 61.16% stake in BRC Asia.
Meanwhile, Hong Leong Investment Holdings Pte Ltd has a 28.29% stake in Southern Steel and a 20.94% stake in BRC Asia.
Southern Steel chairman Seah Kiin Peng is also CEO and executive director of BRC Asia, while Southern Steel director Zhang Cheng is a nominee of Green Esteel.
Southern Steel said it is disposing of the controlling stake in SSM to leverage BRC Asia’s industry expertise to drive SSM’s business expansion and operational efficiencies.
“Southern Steel will retain a minority stake in SSM, ensuring its continued participation in SSM’s growth trajectory and profitability,” it added.
Southern Steel also noted the disposal is in line with the group’s business strategy and proceeds raised will strengthen its financial position, with RM60.23 million earmarked to fund working capital requirements.
According to Southern Steel, the RM61.05 million disposal consideration represents a 0.01% premium to 55% of the adjusted unaudited net assets (NA) of SSM as at end-December 2024 of RM61.045 million. The adjusted unaudited NA figure comprises SSM’s unaudited NA of RM105.62 million, a net revaluation surplus of RM11.65 million, minus adjustments on deferred tax amounting to RM6.28 million.
SSM posted a net profit of RM4.72 million in the financial year ended June 30, 2024 (FY2024) on a revenue of RM524.28 million. The unit logged a net loss of RM2.62 million and revenue of RM507.16 million in FY2023 and a net profit of RM4.97 million and revenue of RM513.55 million in FY2022.
The disposal is expected to result in a net pro forma loss of RM15.21 million — RM61.05 million disposal consideration versus 55% of unaudited NA of SSM of RM58.09 million, RM17.35 million goodwill and RM820,000 in expenses related to the disposal.
Green Esteel emerged as Southern Steel’s new controlling shareholder in January this year. This came following the completion of the issuance of 752.06 million new shares to Green Esteel at 42 sen apiece or a total of RM315.86 million.
In February, a binding term sheet was inked between Southern Steel and BRC Asia to discuss the proposed disposal of a controlling stake in SSM to BRC Asia as well as a subscription of new SSM shares by BRC Asia.
However, Southern Steel said on Tuesday that parties resolved to only pursue the SSM controlling stake disposal following negotiations.
The disposal is subject to Southern Steel shareholders’ approval at an extraordinary general meeting to be convened later as well as BRC Asia obtaining an assessment by the Singapore Exchange Regulation Pte Ltd on BRC Asia’s view on the application of Rule 908(2) — transaction between interested parties — of the Singapore Exchange Listing Manual or approval from its non-interested shareholders.
The disposal is expected to be completed in the second half of 2025, according to Southern Steel.
Shares in Southern Steel ended half a sen or 1.56% higher at 32.5 sen, valuing the group at RM487.86 million.