PETALING JAYA: Heng Huat Resources Group Bhd has aborted a proposed rights issue previously announced on Nov 18, 2019 and instead opted for the disposal of its land for a cash consideration of RM22 million, to help raise funds for the repayment of bank borrowings.
Heng Huat’s Bursa disclosure explained that the decision was made after considering its ability to complete the rights issue, which includes the likelihood of meeting the minimum level of subscription as well as the prevailing market conditions which drove its share price down to 21 sen on May 13, lower than the rights issue price of 25 sen.
Initially, it intended to raise a minimum of RM10.5 million from the rights issue with RM9.8 million allocated towards repaying the group’s bank borrowings.
Without the issue, it has opted to raise the funds via the proposed disposal of land and building owned by Heng Huat’s indirect wholly-owned subsidiary, HK Kitaran Sdn Bhd.
In a separate filing, the group disclosed that it had entered into a sale and purchase agreement with SBJ Property Sdn Bhd to dispose five parcels of land measuring roughly 53,354 square metres together with the buildings erected on the land, in Seberang Perai Selatan, Penang.
It revealed that the land and building was valued at RM28 million following an appraisal by an independent appraiser.
The disposal consideration of RM22 million represents a 21.43% discount over the market value.
From the proceeds of the disposal, Heng Huat will utilise RM11.7 million towards the repayment of bank borrowings, RM10.03 million will be put towards working capital and RM270,000 will be used towards expenses relating to the disposal.
In view of the slowdown in demand of oil palm empty fruit bunch (EFB) due to trade disputes between China and the US and the recent Covid-19 outbreak, Heng Huat said there has been lower demand for its products as many of its customers primarily based in China are affected.
Thus, the group has decided to scale down its operations by disposing of the property which will reduce its operational and maintenance cost.
“The proposed disposal will enable Heng Huat to use the proceeds to mainly repay its bank borrowings and enhance its working capital to facilitate its operating activities. The reduction of its bank borrowings will enable Heng Huat to reduce its gearing, improve its future borrowing ability and improve its cash flow position,” it said.
