01/06/2017

Activist Urges Steel Player HG Metal to Divest

BRC Asia Stake; Pay Out Excess Cash to
Investors
Call for steel player to realise over $30 million boosts its share price and that of BRC Asia
SINGAPORE Activist fund Quarz Capital Management
sent the share prices of two counters surging yesterday.
Quarz called on HG Metal Manufacturing, Singapore's
fourth- largest listed steel player by revenue, to distribute
a third of its hefty cash pile to investors.
Quarz - a minority shareholder of HG Metal - also urged
the firm to explore the possible sale of its stake in industry
peer BRC Asia.
HG Metal shares jumped 10 cents or 28.57 per cent
yesterday to close at 45 cents. BRC Asia leapt 13 cents
or 18.7 per cent to 82.5 cents.
In an open letter to the HG Metal board released yesterday, Quarz said the firm trades at a "fire sale discount"
of 60 per cent to its net asset value of $111 million, and discounts of up to 35 per cent to its listed steel trading
and manufacturing peers.
In fact, HG Metal could realise more than $30 million in cash by divesting its 23 per cent stake in BRC Asia,
which is valued in excess of $30 million, Quarz has suggested.
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.
It has proposed that HG Metal conduct a full strategic review on a potential divestment.
Quarz's letter came a day after BRC Asia said on Monday that some substantial shareholders had received an
"unsolicited approach" over a potential acquisition.
In the letter, Quarz also urged the HG Metal board to distribute $10 million of excess cash to shareholders. HG
Metal sits on a rich cash pile with net cash of $29 million, or 65 per cent of its market cap, Quarz wrote. It has
a less than 5 per cent stake in HG Metal.
Buyout talk fuelled a surge in the shares of HG Metal and BRC. But Mr Justin Tang, director of global special
situations at Religare Capital Markets, is doubtful.
"The market might be getting ahead of itself. Low liquidity is also an issue and may explain the outsized move.
BRC does not have a whole lot of cash flow for a leveraged buyout. Industry consolidation is also unlikely. For
example, Lee Metal has a lower price-to-earnings ratio than BRC, so it would be a dilutive deal for them," he
said.
Longer term, Quarz has proposed HG Metal scale down its steel trading arm and shift its focus to growing its
manufacturing arm - which accounts for the group's entire profit base - into its core business.
The manufacturing division fabricates reinforcing steel products mainly for the Singapore construction industry,
where it is the leading reinforcement and customised steel bar supplier for roof support in industrial and
commercial buildings.
HG Metal did not comment by press time.
Marissa Lee

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