SINGAPORE - Activist fund Quarz Capital Management has called on HG Metal Manufacturing, Singapore's fourth largest listed steel player, to distribute a third of its hefty cash pile to investors and explore a sale of its stake in industry peer BRC Asia.
Shares of HG Metal were up 10 per cent at 38.5 cents as at 4.15pm on Wednesday.
Shares of BRC Asia rose as much as 17.99 per cent to 82 cents.
In an open letter to the HG Metal board on Wednesday, Quarz wrote that the company trades at a "fire sale discount" of 60 percent to its net asset value of $111 million, and discounts of up to 35 per cent to its listed steel trading and manufacturing peers.
In fact, HG Metal could realise more than $30 million in cash by divesting its 23 per cent stake in BRC Asia, which is valued in excess of $30 million, Quarz has suggested.
Although HG Metal is BRC Asia's second largest shareholder, its stake "currently provides no tangible value and/or contribution to HG's operations", Quarz wrote.
It has proposed that HG Metal conduct a full strategic review on a potential divestment.
Quarz's letter comes a day after BRC Asia said on Monday that multiple parties are interested in building significant stakes in the firm.
In the letter, Quarz also called for the board to distribute $10 million of its excess cash to shareholders.
HG Metal sits on a rich cash pile with a net cash position of $29 million, or 65 per cent of its market cap, Quarz wrote.
In the longer term, Quarz has proposed that HG Metal scale down its steel trading division and shift its focus to growing its manufacturing division - which accounts for the group's entire profit base - into its core business.
The manufacturing division fabricates reinforcing steel products mainly for the Singapore construction industry, where it is the leading reinforcement and customised steel bar supplier for roof support in industrial and commercial buildings.