Metal Component inks agreement for 75.5m yuan sale of Chinese unit

METAL Component Engineering will sell its dormant Chinese subsidiary for 75.5 million yuan (S$14.8 million) in cash.

The Catalist-listed metal stamping company on Wednesday announced it has entered into a conditional sale and purchase agreement to sell MCE Industries (Shanghai).

The buyer is Hong Sheng Holding (Singapore), an investment holding company owned by Pan Genfu, a businessman from China. 

Metal Component had said in December that its plans to sell the subsidiary will not need shareholder approval, after the company got a waiver from the bourse operator.

The company had said then that Mr Pan had not yet completed due diligence of MCE Industries, and that no definitive agreement has been inked for the deal.

MCE Industries, which fell dormant in 2017 after closing a manufacturing plant, is a non-core asset of Metal Component.

The subsidiary has not had any business operations for more than two years, and currently holds a vacant property with some cash as its main assets.

Net proceeds from the proposed sale, after deducting some S$2.53 million in estimated expenses, is about S$12.3 million. This represents a gain of S$2.4 million over the net book value of MCE Industries as at June 30, 2019.

A capital reserve of S$6 million will also be realised by the group as a result of the deal, Metal Component said.

The group thus expects to recognise a gain on disposal of about S$8.4 million in respect of the proposed sale.

Metal Component will use these proceeds to invest in property, plant and equipment, to repay bank borrowings and for general working capital requirements.

Based in Shanghai, MCE Industries owns a leasehold land and property located in Qing Pu district spanning a land area of 25,000 square metres (sq m) and comprising six buildings with a total built-up area of 9,753 sq m.

As part of the group's consolidation and cost-savings efforts, MCE Industries' manufacturing plant was closed in 2017, and the property has been vacant since then. The existing programmes of MCE Industries were also transferred to the group's other subsidiary in Suzhou, China.

Based on a valuation report by an independent valuer dated Feb 28, 2019, the market value of the property as at Dec 31, 2018 was about 53.5 million yuan. 

The net asset value of MCE Industries was about 50.1 million yuan as at end December 2018, and the net loss attributable to MCE Industries was 3.75 million yuan.

On Wednesday, Metal Component also said it has agreed to pay the buyer, Hong Sheng, 500,000 yuan as compensation for the penalty that may arise from Metal Component's failure to complete the second phase of a construction project on MCE Industries' land.

Metal Component had agreed in 2004 to complete two phases of construction on the land, with the second phase to be completed by Sept 14, 2007. However, as at Jan 28, 2020, it was still not completed.

Shares of Metal Component were trading at 2.8 Singapore cents as at 2.23pm on Wednesday, up 0.4 cent or 16.7 per cent.