Hong Lai Huat has agreed to sell HLHI (Cambodia) for a cash consideration of US$1.5 million or $2.01 million based on the exchange rate of US$1 to $1.339 as at Feb 1.
At the same time, the group has also agreed to sell HLH Agriculture (Cambodia) for a cash consideration of US$36 million or $48.22 million.
Hong Lai Huat, on Feb 5, announced that it had entered into two separate sale and purchase agreements (SPAs) with the purchasers for the disposals of both entities.
As at Feb 5, HLHI has rights to some freehold property situated in Trapaing Chor commune and Sangke Satorb commune, Oral district, Kampong Speu, Cambodia. The seller already holds a 49% stake in the entity while a director of HLHI holds the remaining 51% interest.
HLHA, as at the same date, has rights to 12 parcels of agricultural land that are 50-year economic land concessions commencing from May 21, 2010. The land is situated Trapaing Chor commune and Sangke Satorb commune, Oral district, Kampong Speu, Cambodia.
The company intends to seek the approval of its shareholders at an extraordinary general meeting (EGM) to be convened at a later date.
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Following the disposal of HLHI, there will be a gain on disposal of $254,051. The disposal consideration is at a discount of around 44.6% to the net tangible assets (NTA) of the sale shares.
According to Hong Lai Huat, the disposal of HLHI comes as it has no immediate plans to develop the land it owns. The land has also been dormant for a prolonged period where it remains as one of the property investments made by the group over the years. In addition, the group says it has other existing landbank that’s located in a better area of the city which may be more suitable for development.
The disposal of HLHA comes after losses in relation to Hong Lai Huat’s agricultural arm for the FY2022 and 1HFY2023. HLHA reported an $8.8 mil loss for the FY2022 and a $1.8 mil loss during the 1HFY2023.
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“The board is of the view that there is visibility that there will be no material changes or developments that may lead to a positive change in the financial performance of the agricultural arm in the reasonable foreseeable future,” says Hong Lai Huat in its Feb 5 statement. This is due to the continuing challenges of having to cope with the decreasing concession term of 36 years left, continued depreciation due to the short period left, the risk of the Cambodian government taking back the concessional land rights should the group discontinue its heavy investments on the land by HLHA and other challenges of operating in the agricultural sector.
It adds that the group is now “strongly focused” on its property development projects in Cambodia.
As such, the proposed HLHA disposal presents it with an opportunity to exit the business.
The net proceeds received from both disposals will go towards the group’s general working capital and repayment of bank loans if any.
Shares in Hong Lai Huat closed flat at 5.3 cents on Feb 5.
