Leon Fuat unit to buy properties in Hulu Langat for RM28 million in related party deal

PETALING JAYA: Leon Fuat Bhd’s wholly owned subsidiary Supreme Steelmakers Sdn Bhd on Wednesday entered into a conditional sale and purchase agreement (SPA) with Leon Fuat Holdings Sdn Bhd (LF Holdings) for the proposed acquisition of a parcel of freehold land measuring 9,946 sqm in Hulu Langat, Selangor, together with the factory, warehouse and office erected including fixtures and fittings for RM28 million cash.

In view of the interests of certain directors and major shareholders of the company and persons connected to them in the proposed acquisition, the exercise is deemed to be a related party transaction.

Supreme Steelmakers is principally involved in trading and processing of stainless steel and other steel products.

Since the compulsory acquisition by the land administrator of Wilayah Persekutuan Kuala Lumpur of Supreme Steelmakers’ land at Kawasan Perusahaan Sungai Besi in 2017 for RM34.47 million cash, Supreme Steelmakers had rented the land from LF Holdings for temporary storage and warehouse purposes and had subsequently relocated its production operations to the land in December 2019 upon completion of the buildings.

Also, prior to the relocation of Supreme Steelmakers’ operations to the land, Supreme Steelmakers had also rented a factory located at Kawasan Perusahaan Sungai Besi from Leon Fuat Hardware Sdn Bhd, a wholly owned subsidiary of Leon Fuat to carry out its operations.

“The proposed acquisition allows Leon Fuat to mitigate the risk of increasing rental rates and/or the loss of right to use the rented premises if the tenancy agreement is terminated and/or is not renewed. In the event that the tenancy agreement is not renewed, there is no assurance that Supreme Steelmakers will be able to find a suitable premise to house its steel processing business in a timely manner and any relocation will result in Supreme Steelmakers incurring additional costs which include, among others, relocation cost, acquisition of new land/building and construction of factory buildings,” Leon Fuat said.

In addition, the exercise allows Leon Fuat to have full control of its own steel processing plant, office and warehouse for better long-term business interests and will eliminate future cash outflows.

Additionally, the management believes that the property possesses favourable prospects and is suitable for Supreme Steelmakers to carry out its business operations on a long-term basis.

“The bigger total gross built up area of the factory and warehouse of 3,400 sqm is sufficient for Supreme Steelmakers to carry out its steel trading and steel processing operations without the need to rent another factory to cater for its needs.”