COSMOSTEEL Holdings Limited, a supplier of piping system components to the energy and marine industries, said on Monday that it plans to issue 26.4 million new shares at S$0.58 each to Tokyo-listed Japanese steel trader Hanwa Co Ltd.
At S$0.58 a share, the placement price is at a 48.7 per cent premium to the volume weighted average trading price of S$0.390 a share on Nov 28, 2014.
The placement, which represents about 10 per cent of CosmoSteel's existing issued share capital, is subject to shareholders' approval at an extraordinary general meeting to be convened.
Ong Chin Sum, CosmoSteel's chief executive officer and executive director, has also agreed to sell 56.22 million CosmoSteel shares, representing a 21.29 per cent stake, to Hanwa at the same price, conditional on the completion of the proposed subscription.
On completion of the two transactions, Hanwa will hold about 28.45 per cent of CosmoSteel's enlarged share capital which amounts to 290.4 million shares.
CosmoSteel said it has entered into a strategic alliance agreement with Hanwa "to create synergies and reinforce marketing and sales efforts relating to their products". Hanwa will be entitled to two board seats comprising one non-executive director and one executive director on the board of CosmoSteel.
On Hanwa's investment, Mr Ong said it would boost CosmoSteel's financial position by reducing bank leverage and improving cash flow as it embarks on its growth plans in the region. It will also better position CosmoSteel to explore future organic and inorganic growth as and when opportunities arise.
Hironari Furukawa, the representative director and president of Hanwa, said the partnership is complementary to Hanwa's operations.
"We believe our wide range of steel products and our global network will surely accelerate CosmoSteel's growth while CosmoSteel's experienced management team in the steel pipe business and established customer base in the oil and marine industry will contribute to our steel business, particularly in the Asean region."
Of the estimated net proceeds of S$14.2 million, CosmoSteel plans to use 24 per cent to finance the construction of a new building and acquisition of machinery and equipment at 90 Second Lok Yang Way; eight per cent to finance the acquisition of machinery and equipment at 36 Tuas Cresent; 35 per cent for the repayment of short term loans and 33 per cent for general working capital purposes.