HG Metal to undertake capital reduction; return cash to shareholders

SINGAPORE - The board of steel distributor HG Metal Manufacturing said on Monday (Sept 25) that it plans to give shareholders a cash distribution of 10.5 Singapore cents a share as part of a capital reduction exercise.

That represents an 18 per cent yield for shareholders based on HG Metal's last closing price of 57.5 Singapore cents. About S$13.4 million will be paid out to shareholders at a books closure date yet to be determined by the board.

The cash is expected to come from HG Metal's proposed sale of its 23 per cent stake in mainboard-listed steel mesh maker BRC Asia to Esteel Enterprise for S$39 million.

HG Metal will also undertake a capital reduction exercise because it had carried the BRC Asia stake in its books for a higher price than the market price.

This capital reduction exercise will not result in a cancellation of shares, or a change in the number of shares issued by the company.

The moves come after activist fund Quarz Capital Management - a minority shareholder of HG Metal - earlier urged the firm to consider selling its stake in BRC Asia.

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 in an open letter to the HG Metal board in May.

Quarz said on Monday: "We thank the board for considering strategic options including those proposed in our open letter dated 31st May 2017.

"In view of the takeover of BRC Asia and the entry of a substantial player (Esteel Enterprise) in the Singapore steel industry, we urge HG Metal to remain committed to effective capital allocation and embark on further value creation strategies for all shareholders."

The proposed capital reduction and cash distribution are subject to completion of the BRC Asia share sale, which is also subject to a vote at an upcoming shareholder meeting.

HG Metal shares jumped 2.5 cents or 4.55 per cent to 57.5 Singapore cents on Monday before the announcement was made.