SINGAPORE - Singapore's largest supplier of ready-mixed concrete and cement is spinning off its Chinese port division ahead of a listing on the Hong Kong bourse.
Pan-United Corp said on Wednesday (May 3) that the "de-merger" of wholly-owned unit Xinghua Port Holdings as a separate listed entity by the end of the year is expected to improve "investor visibility".
Creating two pure-play businesses on different stock exchanges could help investors better assess the respective market values of the concrete and cement operation and the ports on a stand-alone basis, it said.
Pan-United hopes to attract a more extensive analyst following given that Xinghua operates in China and get easier access to international and North Asian investment funds that are familiar with the Chinese port sector.
As part of the de-merger, Xinghua plans to capitalise an existing $102 million inter-company loan extended by Pan-United into newly issued Xinghua shares.
Pan-United will also undertake a capital reduction exercise and distribution in specie of its entire stake in Xinghua to shareholders on the indicative basis of one Xinghua share for every two Pan-United shares.
Xinghua also intends to issue new shares comprising up to 5 per cent of its enlarged share capital under an incentive scheme that will benefit select employees and certain business partners.
Separately, Pan-United aims to raise gross proceeds of $60.9 million through a renounceable non-underwritten rights issue of up to 141.6 million new shares.
Each rights share will be issued at 43 cents on the basis of one rights share for every four existing ordinary shares.
The proceeds will be used to partially retire Pan-United's external debt.
NRA Capital head of research Liu Jinshu noted that on completion of the exercise, Pan-United's net gearing ratio would drop from 0.73 as at Dec 31 to 0.12.
He said: "It's a good move because the group will have more financial headroom to expand in key markets like Malaysia and Vietnam. Pan-United is a major market leader in Singapore, but they need to regionalise and you need a certain amount of scale to be profitable in the cement business - it's capital intensive.
"On the other hand, shareholders are not losing out. They can get back some of their capital in the form of port shares, while considering whether to subscribe for the rights."
Xinghua operates two ports along the Yangtze River in China's Jiangsu province.
Although Pan-United's port business accounted for $91.9 million or 13 per cent of group revenue in 2016, overall it represented 63 per cent or $16.5 million of profit after tax and non-controlling interests.
Also on Wednesday, the group reported first-quarter net profit of $3.1 million, down 19 per cent from the same period a year earlier. Revenue in the three months to March 31 was $153.2 million, down 14 per cent from a year ago owing to lower demand and selling prices for concrete and cement in Singapore although cargo volumes handled in the two ports grew 6 per cent.
Pan-United shares closed one cent lower at 72 cents before trading was halted before the announcements were made on Wednesday.