KUALA LUMPUR: Tiong Nam Logistics Holdings Bhd has signed a shareholders agreement on a new partner to operate its loss-making hospitality unit Terminal Perintis Sdn Bhd.
Tiong Nam said the transaction entails Terminal Perintis issuing 5.2 million new shares, or 51 per cent of its enlarged equity, to Create Fortune Enterprise Sdn Bhd for RM36.7 million.
"The exercise is part of its streamlining to focus on expanding its core integrated logistics and warehousing services business.
"The deal would see the loss-making Terminal Perintis become an associate company, with its financials no longer consolidated in the group accounts," it said.
Currently a wholly-owned subsidiary of Tiong Nam, Terminal Perintis owns Fraser Place Puteri Harbour in Johor Bahru, a 25-storey hotel with 297 rooms.
It is also the developer of the adjacent residential block comprising 268 units of serviced apartments, worth RM476.7 million in gross development value.
Managing director Ong Yoong Nyock said the strategic direction was to grow Tiong Nam's integrated logistics and warehousing services business.
Ong said the company had continued to witness strong demand from various industries and is poised to expand its network further throughout Malaysia and Southeast Asia.
"The dilution of interest in our hospitality business will not only allow us to focus on enhancing our core strengths, but also free up significant resources for our continued expansion," he said.
The shareholders' loan proportion will effectively result in Terminal Perintis repaying RM52.9 million of loans to Tiong Nam, which will be utilised by the company for business expansion and working capital needs.
Tiong Nam is expanding its warehousing capacity across Malaysia and Southeast Asia, with total warehousing capacity expected to increase to 6.4 million square feet in 2022.
Additionally, Create Fortune will be able to exercise the option to buy the remaining 49 per cent of Terminal Perintis within a five-year period from the completion of the transaction.
Tiong Nam said the dilution of its stake in Terminal Perintis would generate positive effect on the company's financial performance.
"Based on Terminal Perintis' net loss of RM22.3 million for the financial year ended March 31, 2021 (FY21), the proforma effects of the dilution would see the company's FY21 net profit rise from RM11.9 million to RM23.3 million," it said.
The shareholders agreement is expected to be completed on December 22, 2021.
The transaction is not subject to the approval of Tiong Nam's shareholders or any other relevant authorities.