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Friday, February 26, 2016

Taliworks exits China, gains solid waste concession in M’sia

KUALA LUMPUR: Taliworks Corp Bhd, realigning its strategy to focus on mature operational cash-generating utilities and infrastructure businesses, is selling its entire China investments - including concessions to operate five wastewater treatment plants and a waste transfer facility - for US$54.6mil (RM230.4mil).

The company also proposed to acquire, for RM245mil, a 35% equity stake in SWM Environment Holdings Sdn Bhd, which has a 22-year concession to provide solid waste collection services in the states of Negri Sembilan, Malacca and Johor and public cleansing management services within the specified cleansing zones.

In a filing with Bursa Malaysia, Taliworks said it proposed to dispose of Taliworks International Ltd (TIL), Taliworks (Sichuan) Ltd (TSL) (80% stake) and SWM Technologies (M) Sdn Bhd (SWMT) to LGB Group (HK) Ltd.

TIL’s subsidiaries, among others, operate four municipal wastewater treatment plants in Yinchuan for a 30-year concession period ending September 2041.

TSL, through a 56% owned subsidiary, operates a wastewater treatment plant in Guanghan City, Sichuan, under a 30-year concession period ending July 2033.

SWMT operates a waste transfer station and its related assets in Tianjin city for a 21-year period ending October 2025.

Meanwhile, SWM Environment Holdings’ unit SWM Environment Sdn Bhd signed the 22-year concession agreement with the Solid Waste and Public Cleansing Management Corp and the Government in September 2011. It manages 4,500 to 5,000 tonnes of waste daily in Malaysia.

SWM Environment Sdn Bhd recorded an after-tax profit of RM185.98mil for the financial year ended Dec 31, 2014 (FY14) while the holding company made RM180.54mil. SWM Environment Sdn Bhd and the group had total borrowings of RM738.13mil as of FY14.

Explaining the merits of its proposals, Taliworks said they would relieve it from the need of supporting the “substantial” capital expenditure requirements of the China division at current unfavourable exchange rates.

The exercise would also allow Taliworks to half its group borrowings, improving gearing levels to 0.36 times.

These are on top of realising a one-off disposal gain of RM48.8mil and enjoying earnings accretion going forward by replacing developing assets with mature and cash-flow generating assets.

The proposals are deemed related party transactions. Lim Chin Sean, a director and major shareholder of Taliworks, is also a major shareholder in LGB Group and has a family relationship with Datuk Lim Chee Meng, who is also a major shareholder of Taliworks and LGB Group. (The two Lims have indirect shareholdings in Tali-Eaux Sdn Bhd and Water Clinic Sdn Bhd, which together have a 32.4% stake in Taliworks.)

Datuk Lim is also a substantial shareholder of the two companies that are the vendors for the 35% stake in SWM Environment.

Taliworks said the proposals were expected to be completed in the first half of 2016.

In Malaysia, Taliworks has (among others) a contract expiring January 2030 to operate the Sungai Selangor water treatment works Phase 1 (supplying to parts of Selangor and Kuala Lumpur) and a concession expiring in October 2020 to supply water in Langkawi,

Taliworks also announced on Thursday a 71.3% drop in earnings for the financial year ended Dec 31, 2015 (FY15) to RM86.58mil despite a 16.1% increase in revenue to RM410.93mil.

It said the group’s financial results were significantly impacted by exceptional items recorded in FY15 and FY14.

“In 2014, the group registered a gain on restructuring of RM272.7mil whereas in 2015, it recorded a gain on disposal of RM59.1mil and RM7.486mil of investment income which was offset by the impairment loss of intangible asset amounting to RM6.745mil,” it explained.

Taliworks said excluding these exceptional items, the group’s pre-tax profit was higher at RM31.7mil compared with RM30.5mil in the previous year.

Taliworks shares gained 1 sen to close at RM1.56 on Thursday, with 1.326 million shares changing hands.

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