Hextar Industries to acquire entire stake in HFL for RM480 mln to expand fertiliser business
08 Aug 2022
Hextar Industries Bhd (HIB) had entered into a conditional share sale agreement (SSA) with Hextar Holdings Sdn Bhd (HHSB) for the proposed acquisition of the entire equity interest in Hextar Fertilizers Ltd (HFL) for RM480 million.
The proposed acquisition will enable HIB to immediately increase its existing production capacity from 75,000 tonnes per annum to an aggregate of 679,000 tonnes per annum and will also allow the HIB Group to tap into HFL Group’s extensive distribution network throughout Malaysia to expand its distribution base.
The HFL Group comprises HFL which holds 100 per cent equity interest in Hextar Fertilizers Group Sdn Bhd which in turn holds 100 per cent equity interest in Hextar Fert Sdn Bhd, Hextar Solutions Sdn Bhd and PK Fertilizers Sdn Bhd.
In a filing with Bursa Malaysia today, HIB said the proposed exercise will be satisfied via the issuance and allotment of 1.6 billion new ordinary shares in HIB at an issue price of 30 sen per share.
The group noted that the issuance of the consideration shares will result in the shareholdings of the HHSB increasing from 45.66 per cent to 77.31 per cent, an increase by more than two per cent of the voting shares of the company.
Thus, it noted that pursuant to Paragraph 4.01(b) of the Rules on Take-Overs, Mergers and Compulsory Acquisitions, HHSB is obliged to extend a mandatory general offer to acquire the remaining HIB shares not already owned by it immediately upon the SSA becoming unconditional.
The group also highlighted that HHSB as the guarantor has provided a cumulative two year profit guarantee to be achieved for the HFL group for the financial year ended (FYE) Dec 31, 2022 and 31 Dec 31, 2023.
It said under the terms of the profit guarantee, the guarantor guarantees to HIB that the HFL Group shall achieve an audited profit after tax of not less than RM94 million on a cumulative basis for the guaranteed period.
As for the rationale of the proposal, the group said in August 2018, HIB diversified into the fertiliser business with the acquisition of PK Fertilizers (Sarawak) Sdn Bhd therefore the proposed acquisition of the HFL Group, which is also involved in the fertiliser business represents a strategic investment in-line with HIB long-term plan to grow its fertiliser business.
It said the proposed acquisition will enable both HIB and the HFL Group to leverage on their combined strengths in relation to key management team experience, market position, production capabilities and their respective business relationships with industry stakeholders.
“Based on the market research undertaken by Protégé Associate Sdn Bhd , the group shared that the market size of the fertiliser industry in Malaysia is forecast to surge from RM4.72 billion in 2021 to RM6.37 billion in 2022 and expand at a compounded annual growth rate (CAGR) of 14.3 per cent to reach RM9.20 billion in 2026.
“Growth in demand is expected to be driven by rising commodity prices of industrial crops as well as the government’s interest in the development of the industrial crops sectors, namely the palm oil and rubber industries as well as the attainment of self-sufficiency in major food commodities,” the group said.
It said upon completion of the proposed acquisition, the HFL Group will become subsidiaries of HIB, thereby enabling the company to consolidate the financial results of the HFL Group which is expected to be earnings accretive
Premised on the foregoing and barring any unforeseen circumstances, the proposed acquisition is expected to contribute positively to the HIB Group in the future, thus enhancing HIB’s shareholders’ value, it added.