Hong Leong Asia to raise stake in BRC Asia to 20% for S$68.1 million

HONG Leong Asia (HLA) - the trade and industry arm of the Hong Leong group - is forking out some S$68.1 million to increase its stake in Mainboard-listed steel-reinforcement solutions provider BRC Asia to 20 per cent through two transactions.

The first transaction involves Hong Leong Asia Investments - a wholly-owned subsidiary of HLA - which on Aug 28 agreed to subscribe to about 31 million placement shares of BRC Asia at an issue price of S$1.48 apiece. This amounts to a total price of some S$45.9 million.

The issue price was arrived at after negotiations between both parties on a willing-buyer and willing-seller basis, and represents a discount of about 2.06 per cent to the volume weighted average price of S$1.5111 per share for trades executed on the Singapore Exchange for the full market day on Aug 27.

This transaction will require the approval of BRC Asia's shareholders at an extraordinary general meeting that will be convened. It was however noted that Esteel Enterprise, which currently owns a 68.96 per cent stake in BRC Asia, has given an undertaking to vote in favour of the transaction.

BRC Asia's board of directors, meanwhile, say that the placement will enhance the company's balance sheet and strengthen its capital base.

HLA on Aug 28 also simultaneously entered into a sale and purchase agreement with five of BRC Asia's shareholders for the acquisition of 15 million ordinary shares at a unit purchase price of S$1.48, which amounts to a total cash consideration of S$22.2 million. These shares collectively represent about 6.16 per cent of the total number of issued shares in BRC Asia, excluding the 1.6 million shares that are held as treasury shares.

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The five shareholders are Xinsteel Singapore, Nuocheng International Trading & Investment, Toe Teow Heng, Wu Ai Ping and Shi Yong.

The shares involved in both transactions will represent about 16.77 per cent of the total enlarged issued and paid-up share capital of BRC Asia.

Upon completion of the transactions, HLA will own about 54.9 million shares in BRC Asia, or about 20 per cent of the company's total enlarged issued and paid-up share capital.

Prior to the announcement of these two transactions, HLA owned 8.86 million shares in BRC Asia, or a stake of about 3.64 per cent.

HLA said this would help expand its interest in the building materials sector in Singapore, and increase technology and automation opportunities for both companies.

HLA also cited the example of Prefabricated Prefinished Volumetric Construction (PPVC) building technology, which has synergies in concrete and steel reinforcement solutions. This area also presents opportunities for overseas growth in markets such as China and other South-east Asian countries that are working towards improving productivity in the building and construction sector.

For Q3 FY2021 ended June, BRC Asia reported net profit of S$10.2 million, compared to a net loss of S$2.5 million in the year-ago period. For the nine months ended June, the company's net profit stood at S$29.3 million, up 46 per cent from S$20.1 million in the corresponding period last year.

Stephen Ho, chief executive of HLA, said: ""This is a unique opportunity to acquire a meaningful stake in BRC, a company steeped in history with a strong focus on innovation and its people.

"There is potential to generate synergy between our concrete and steel reinforcement capabilities as we pursue the path towards technology and automation in Singapore and markets beyond."

The transaction is expected to close before Dec 31, and is not expected to have any material impact on the net tangible assets per share or earnings per share of HLA in its current financial year.

Shares of Hong Leong Asia ended Friday down 2.3 per cent or S$0.02 at 83.5 Singapore cents, while shares in BRC Asia closed 1.3 per cent or S$0.02 higher at S$1.52.