Shareholders of Zelan Bhd have given the green light for the disposal of up to 30 million shares in IJM Corp Bhd to enable an avenue for the group to raise funds and position itself with a stronger cash flow.
Primarily involved in engineering and construction, Zelan’s stake in IJM Corp is expected to dip from 7.13% currently to around the 5% mark if the entire 30 million shares representing about 2.22% of the issued and paid-up capital of IJM Corp be disposed.
Zelan’s non-independent non-executive director Datuk Hasni Harun said the group had a time frame of 12 months following the shareholders’ approval to dispose of the 30 million IJM Corp shares in the open market and/or through direct business transactions.
He said the board of directors could carry out the disposal in stages depending on market conditions of Bursa Malaysia Securities and traded prices of IJM Corp’s shares. He added Zelan’s cash flow requirement would also be a factor when determining the appropriate time for any disposal to take place.
“The resolutions have been approved and all went very smoothly in the meeting. They (shareholders) have given us the mandate to dispose of the 30 million shares,” Hasni told reporters following Zelan’s EGM yesterday.
He pointed out that part of the proceeds from the disposal would be used to fund the Gombak Integrated Transport Terminal (GITT) project which is expected to provide an income stream of RM900 million over 25 years. It was reported last month that the GITT project would contribute an additional RM220 million to Zelan’s orderbook.
According to its circular to shareholders for the EGM, the proposed disposal of 30 million shares based on IJM Corp’s volume weighted average price (VWAP) of about RM5.06 per share would translate into gross proceeds of RM151.8 million for Zelan.
Zelan’s board had proposed to utilise the gross proceeds by allocating RM50 million for repayment of borrowings of the group, RM98.55 million as working capital and the balance RM3.25 million for estimated expenses for the proposed disposal.
The total borrowings of the Zelan Group as at July 31, 2010 stood at RM278.67 million. For illustrative purposes, the circular said that possible savings in interest payment arising from part repayment of RM50 million borrowings could be about RM3.5 million per annum (based on average interests costs of the said borrowings of 7% per annum).
The circular noted the proposed disposal if implemented was expected to improve the earnings and earnings per share of the group in the future as a result of the funds raised. It added there would be possible positive savings from repayment of borrowings from part of the proceeds raised as well as additional revenue depending on how profitable the group uses the remainder of the funds.
In its first quarter ended June 30, 2010 (1QFY11), Zelan posted a lower net profit of RM874,000 as compared to RM4.3 million a year ago mainly attributable to lower profit recorded from existing overseas projects of the engineering and construction business unit which were secured in 2006 and 2007.
Revenue in 1QFY11 fell 73.7% to RM98.11 million from RM372.51 million previously while posting basic earnings per share of 0.15 sen versus 0.76 sen. The group’s net asset per share stood at 77 sen as at June 30.
Zelan’s share price yesterday close unchanged at 64.5 sen with a turnover of 8.53 million shares while IJM Corp added seven sen to end the day at RM5.13 with 3.14 million shares traded.
This article appeared in The Edge Financial Daily, September 8 2010.
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