KUALA LUMPUR (July 22): Tiong Nam Logistics Holdings Bhd is disposing of its 51% stake in loss-making hospitality subsidiary Terminal Perintis Sdn Bhd (TPSB) to property investor Create Fortune Enterprise Sdn Bhd (CFE) for RM36.7 million, to streamline the group’s business.
Tiong Nam said in a bourse filing that it has entered into a shareholders agreement with CFE for the latter to subscribe 5.2 million new shares of TPSB, which will result in the dilution of Tiong Nam’s shareholdings in TPSB from 100% (wholly-owned subsidiary) to 49% (associate company).
CFE is a private firm in Malaysia involved in investment in landed properties and rental collection.
Currently, TPSB owns Fraser Place Puteri Harbour in Johor Bahru, a 25-storey hotel with 297 rooms. It is also the developer of the adjacent residential block comprising 268 units of serviced apartments which have a gross development value of RM476.7 million.
“The exercise is part of its streamlining to focus on expanding its core integrated logistics and warehousing services business. The deal would see the loss-making TPSB become an associate company, with its financials no longer consolidated in the group accounts,” said Tiong Nam.
In a statement, Tiong Nam’s managing director Ong Yoong Nyock said the group’s strategic direction is to grow and improve Tiong Nam’s integrated logistics and warehousing services business.
“We have continued to witness strong demand from various industries which are increasingly relying on our expertise, and are poised to expand our network further throughout Malaysia and Southeast Asia,” he said.
He also said the dilution of interest in the group’s hospitality business will not only allow the management to focus on enhancing the group’s core strengths but also on freeing up significant resources for its continued expansion.
According to him, the shareholders agreement also stipulates that CFE will advance shareholder loans to TPSB, in such an amount that the proportion of shareholders’ loans to TPSB is equal to the 51:49 shareholding structure between TPSB and Tiong Nam.
Ong said the shareholders’ loan proportion will effectively result in TPSB repaying RM52.9 million worth of existing loans to Tiong Nam, which will be utilised by the group for business expansion and working capital needs.
He said Tiong Nam is in the midst of expanding its warehousing capacity across Malaysia and Southeast Asia, with total warehousing capacity expected to increase to 6.4 million square feet (sq ft) in 2022, from 6.0 million sq ft as at March 31, 2021.
Additionally, CFE may also exercise the option to purchase the remaining 49% of TPSB’s issued shares within a five-year period from the completion of the transaction, he added.
Ong also said the dilution of Tiong Nam’s stake in TPSB will generate a positive effect on the group’s financial performance.
Based on TPSB’s loss after tax of RM22.3 million for the financial year ended March 31, 2021 (FY2021), the proforma effects of the dilution would see the group’s FY2021 profit after tax rise from RM11.9 million to RM23.3 million.
The shareholders agreement is expected to be completed on Dec 22, 2021.
Tiong Nam closed 4.5 sen or 5.42% higher at 87.5 sen today, valuing the group at RM438.09 million.