Tong Herr to set up a RM632m JV steel billet plant in Vietnam

Tong Herr to set up a RM632m JV steel billet plant in Vietnam




Written by Financial Daily

Tuesday, 25 August 2009 10:21



KUALA LUMPUR: TONG HERR RESOURCES BHD [] is teaming up with four individuals of a Taiwanese family to set up a steel billet manufacturing plant in Vietnam with an investment cost of US$180 million (RM631.8 million).



Tong Herr said yesterday it had entered into a shareholders’ agreement with Tsai Ching-Tung, Tsai Min Ti, Tsai Hung-Chuan and Tsai Yi Ting for the proposed joint venture (JV) in Fuco International Ltd.



The parties had earlier agreed to cooperate in the establishment of the steel billet manufacturing business in Vietnam through Fuco Steel Corporation Ltd.



It said Fuco Steel was granted an investment approval on April 2, 2007 by the BaRia VungTau Industrial Zone Authority to produce steel billets in Vietnam.



Subsequently, Fuco Steel had on March 18, 2008 entered into a land sub-leasing contract, amended on April 20, 2009, with the Ministry of CONSTRUCTION [], Vietnam Urban and Industrial Zone Development Investment Corporation to sublease a land measuring about 304,067 square metres at Phu My II Industrial Zone, Tan Thanh District, BaRia VungTau Province for the proposed plant. The duration of the land sublease is until June 29, 2055.



Fuco International’s current shareholders are the Tsai family members. Pursuant to the agreement, Tong Herr would subscribe for a 37.04% stake comprising 18,518 shares for a total of US$19.99 million cash.



Tong Herr said the JV parties would make a total cash investment of US$54 million via the subscription of new shares of US$1,080 each in Fuco International, which in turn will be injected into Fuco Steel, while Tong Hwei Investment Ltd will invest US$6 million cash in Fuco Steel.



It said the balance of US$120 million would be financed by Fuco Steel via borrowings from financial institutions.



Fuco International will have a 90% stake in Fuco Steel, while Tong Hwei will hold the balance 10%. Tong Herr expects the plant to be operational by 2011.



Tong Herr said it would finance its obligations of US$19.99 million from internal funds.



It said the proposed JV was consistent with its objective of seeking various strategic alliances and joint venture for synergistic benefits to enable it to expand into the steel billet manufacturing industry and enter into new overseas market.



“The proposed JV also represents a good opportunity for the group to further expand its revenue in terms of going upstream in the steel industry and hence, to further broaden its earnings base,” it said.



Tong Herr said the investment certificate offered tax incentives such as corporate income tax exemption for the first four years. Fuco Steel was liable to pay corporate income tax, an annual corporate income tax of 5%, instead 10%, for the following nine years, representing a 50% discount from the annual corporate income tax of 10%, tax of 10% for the following two years and 28% annual corporate income tax for the following years as well as other investment incentives.





This article appeared in The Edge Financial Daily, August 25, 2009.