KUALA LUMPUR (July 23): Tiong Nam Logistics Holdings Bhd will be issuing 5.2 million new shares in its loss-making unit Terminal Perintis Sdn Bhd (TPSB) to Create Fortune Enterprise Sdn Bhd (CFE) for RM36.7 million.

Tiong Nam said in a bourse filing yesterday, it has entered into a shareholders agreement with CFE for the latter to subscribe to 5.2 million new shares of TPSB, which will result in the dilution of Tiong Nam’s equity interest in TPSB from 100% to 49%.

The proceeds to be received from the subscription of shares will be utilised by TPSB for working capital and other financial obligations, according to the filing.

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, worth RM476.7 million in gross development value.

“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.

He noted that the divestment will not only allow the management to focus on enhancing on the group’s core strengths, but also freeing up significant resources for its continued expansion.

According to Ong, who is the largest shareholder of Tiong Nam, the agreement includes the term for CFE to 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 sq ft in 2022, from 6 million sq ft as at 31 March 2021.

Additionally, CFE will be able to 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 noted that 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 31 March 2021 (FY2021), the proforma effects of the dilution will 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.

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