Tiong Nam Logistics Holdings Berhad has signed a Shareholders Agreement to invite a new partner to operate its loss-making hospitality subsidiary, Terminal Perintis Sdn Bhd (TPSB).
The transaction entails TPSB issuing 5.2 million new shares, or 51% of its enlarged equity, to Create Fortune Enterprise Sdn Bhd (CFE) for a purchase consideration of RM36.7 million.
Currently a wholly-owned subsidiary of Tiong Nam, TPSB owns Fraser Place Puteri Harbour in Johor Bahru, a 25-storey hotel with 297 rooms. TPSB is also the developer of the adjacent residential block comprising 268 units of serviced apartments, worth RM476.7 million in gross development value (GDV).
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.
“Our 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.”
“The dilution of interest in our hospitality business will not only allow us to focus on enhancing our core strengths, but also free up significant resources for our continued expansion.”
The Shareholders Agreement also included the term for CFE to advance shareholder loans to TPSB, in such amount that the proportion of shareholders’ loans to TPSB is equal to the 51:49 shareholding structure between TPSB and Tiong Nam.
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.
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 31 March 2021.
Additionally, CFE would 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.
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 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 22 December 2021. The transaction is not subject to the approval of Tiong Nam’s shareholders or any other relevant authorities.