KUALA LUMPUR: MAG Holdings Bhd (MHB) is venturing into shrimp farming in Indonesia to tap the growing demand for shrimp in the country.
MHB signed a term sheet with Lim Shrimp Organization Ltd (LSOL) to invest up to 50 per cent equity interest valued at SG$6.1 million (equivalent to RM22 million) in Lim Shrimp Aquapolis Pte Ltd (LSA) for the project.
LSOL's principal activity is the operation of fish butcheries and farms, while LSA is involved in management consulting services and consultancy in aquaculture township development.
Further, the term sheer deal also paves the way for MHB to ink a joint venture with PT Gerbang NTB Emas (PT GNE) for shrimp farming and processing in Sumbawa, Indonesia.
MHB's statement said the investment signifies a substantial expansion of the company's investment portfolio, highlighting MHB's trust in the growing shrimp farming industry.
MHB executive chairman Ng Min Lin said that through this strategic investment in LSA and the alliance with PT GNE, MHB is expanding its footprint in the shrimp farming industry outside of Malaysia.
"This move underscores our belief in the industry's potential and reaffirms our commitment to achieving tangible growth and offering sustainable value to our shareholders," he said in a statement.
The agreement assures MHB that, within four years from the commencement of the shrimp processing and cold storage plant's operations, LSA will generate an average annual net profit of at least SG$2.0 million (equivalent to RM6.9 million).
LSOL undertakes to cover any shortfall in total net profit over the four years, thus ensuring profitability.
LSOL further warrants that the profit guarantee's total capital expenditure and the working capital requirement will not exceed US$20 million.
This represents a balanced approach to risk and reward, thus making the deal lucrative for all parties involved.
The strategic alliance with PT GNE involves forming a foreign investment company (FIC) in Indonesia, in which PT GNE will hold a 20 per cent equity stake.
PT GNE will secure exclusive licensing rights from the Province of West Nusa Tenggara (NTB) for developing and operating a shrimp processing and cold storage plant on Sumbawa Island, Indonesia.
In addition, PT GNE will arrange financing for half of the total project cost with Bank NTB and ensure that the FIC enjoys a tax-free status for three years from the start of commercial operations.
The company will also facilitate all necessary permits and infrastructure for the smooth running of the shrimp processing and cold storage plant.
Finally, PT GNE will facilitate the upgrade of the Pelabuhan Badas Port to handle export-capable 20-foot reefer containers and, in collaboration with MHB, will process and export shrimp to major global markets, including the United States (US), Europe, China, and Australia.
"With the unyielding support of our dedicated team and our shareholders, we are confident that this significant investment will deliver sustainable value and substantial earnings in the medium and long term," Ng said.