THE BUZZ
Southern Steel informed Bursa Malaysia that it has entered
into a joint venture agreement on 8 May 2012 with NV Bekaert SA (Bekaert), a
company incorporated in Belgium, to form a joint venture company (JV Co.) in
Singapore for the manufacture and sale of specified steel. The terms and
conditions set under the proposed JV Co. include:
- Southern Steel shall sell its entire equity interests in
wholly-owned subsidiaries, Southern Speciality Wire SB and Southern Wire
Industries (Malaysia) SB plus Cempaka Raya SB, to the JV Co.
- Separately, Bekaert shall sell its entire galvanized and
multi-coated wire business in Indonesia
(currently undertaken by its Indonesian subsidiary, PT Bekaert
Indonesia) to the JV Co.
- The above transaction will result in
Southern Steel and Bekaert holding approximately 67% and 33% of the
enlarged share capital of the JV Co. respectively.
- Concurrently, Southern Steel shall sell such number of
ordinary shares that amount to approximately 22% of the enlarged share capital
in the JV Co. to Bekeart, such that the final participation ratio in the JV Co.
remains at Southern Steel – 45%: Bekeart – 55%.
OUR TAKE
Briefly on Bekaert.
Bekaert, founded in 1880, is a global technological and market leader in
advanced solutions based on metal transformation and coatings. Bekaert is also
the world’s largest independent manufacturer of drawn steel wire products. Headquartered
in Belgium and listed on Euronext, it is a global company that
serves customers in more than 120 countries worldwide. Bekaert pursues
sustainable profits for all its business activities and its combined sales
amounted to EUR1.1bn as of 1QFY12. In 2011, the company generated EUR4.6bn in
combined sales, while posting a net profit of EUR193.0m.
Moving up the value
chain. Southern Steel has been focusing on the higher grade wire rods and
downstream products in recent
years. Since Bekaert has expertise
in drawn steel wire products and advanced solutions based on metal transformation
and coatings, Southern Steel will now have the opportunity to expand its steel
wire manufacturing and sale business. It will also be able to jointly promote
Southern Steel and Bekaert brands in the ASEAN market since the JV Co. will have the exclusive rights
(directly or indirectly) to manufacture and sell such
products in the ASEAN region. Under the agreement, Bekeart shall grant
the JV Co. an exclusive licence to use and exploit some of its technology to
manufacture, sell, market and distribute products in the ASEAN region in
exchange for a 1% royalty on net annual sales. In return, Southern Steel shall grant
the JV Co. the rights to use some of its product trademarks in exchange for a
0.5% royalty on net annual sales. All in
all, we think the proposed JV will
provide long-term synergies to
the Southern Steel group despite
the dilution of equity, as the JV may eventually lead to the creation of a
bigger and sweeter pie for both parties.
Source: OSK188
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