Vermicelli manufacturer KBB Resources Bhd, which has proposed to acquire a 10% stake in Shandong-based World Granary Holding Ltd (Tianxia) for RM21 million [US$6.81 million] through a share swap, intends to increase its stake in the Chinese company to 20% within a year after proposal submission, said its personal assistant to group managing director Kelvin Khoo.

“We’re also planning at raising funds via a rights issue within six months,” he told reporters after the share sale agreement signing ceremony between KBB and Tianxia here yesterday. The event was witnessed by Deputy Finance Minister Datuk Donald Lim Siang Chai.

Khoo said the initial 10% stake acquisition, which will take about six months to submit to the relevant authorities, will be carried out via a share swap and allow both companies to distribute and sell their respective products in the China and Malaysian markets.

Under the exercise, KBB will acquire a 10% stake in Tianxia, comprising 5,000 shares of US$1 each. The purchase of Tianxia shares would be satisfied via the issuance of up to 35 million new KBB shares at an issue price of 60 sen [US$0.20] per share, an 18% premium over its closing price of 51 sen [US$0.17] on Friday. Tianxia will then hold a 22.5% stake in KBB.

KBB is primarily engaged in the manufacturing and marketing of all types of vermicelli (beehoon), noodles, instant noodles, instant vermicelli and other related products in Malaysia. Tianxia Group and its key operating subsidiaries in China, which includes Shandong Fengyu Flour Industry Ltd, are principally involved in the production and sales of wheat related products such as wheat flour and wheat noodles.

The exercise will provide a pathway for KBB and Tianxia to work together to grow the business in the sales, distribution and procurement of KBB’s products in the China market. “We will leverage on Tianxia’s network to distribute KBB’s products in China and appoint Fengyu as our distributing agent there.”Tianxia will tap on KBB’s network to distribute its products in Malaysia and the Middle East, in which KBB will be appointed as the distribution agent in these two markets,” Khoo said.

KBB is slated to export its products to China in June and expects some sales increase in one or two years. “We will export key products like instant beehoon and noodles to China, while Fengyu will bring in key products like wheat flour and wheat noodles to Malaysia,” said Khoo, adding that beehoon products are popular in southern China.

Fengyu group CEO Ren Zhao Feng said the sale of wheat-related products in China remains high but as it is a matured market, growth there remains a challenge over the years. “Hence, the group is always looking to grow its business outside China in underrepresented regions such as Malaysia and the Middle East,” Ren said, adding that Fengyu is also considering listing the company in a foreign bourse and Bursa Malaysia is one of its options.

Upon completion of the proposed acquisition, KBB will help Tianxia to develop a new range of products that are halal-compliant for the Middle East market. KBB will also undertake the production and manufacture of this new range of products by setting up a new manufacturing line. KBB is also identifying a suitable strategic partner in Thailand to venture into the Thai market by year-end. “We’re in talks with potential partners, but we haven’t firm up any deals,” said Khoo.

KBB is the market leader in the domestic market, with over 50% share of the vermicelli industry. KBB has eight in-house brands, with its established product manufactured under the “Eka” brand in Malaysia. KBB distributes its products via four main warehouses in Peninsular Malaysia. Its production facilities are located in Baling (Kedah), Tasek Gelugor (Penang) and Sibu (Sarawak).

Moving forward, KBB will continue in its cost cutting efforts, consolidation of loss making operations, improving operational efficiency and productivity, improving inventory control and credit control as well as focusing on product development and quality improvement in rice and sago sticks (vermicelli) operations in order to sustain the company’s market dominance.

Source: The Sun Daily Jan 2013

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