Mainstream
Possible RTO for Asia Brands
Shalini Kumar 
In an effort to streamline operations and reduce losses, Asia Brands closed some outlets under its babywear and innerwear divisions
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APPAREL manufacturer Asia Brands Bhd is likely to see better times following the entry of a new major shareholder.

In December last year, Asia Brands entered into a conditional share subscription agreement with Trackland Sdn Bhd.

Asia Brands proposes to issue and allot 31.99% of its share capital to raise RM27.57 mil cash to repay bank borrowings.

Upon completion of the proposed exercise, Trackland will emerge as a new major shareholder of Asia Brands. It also intends to appoint a representative to the board.

Asia Brands also saw the emergence of another substantial shareholder, Choo Bay See, on Feb 9 with a 6.5% stake.

A fund manager says there could be a possibility that Trackland might undertake a reverse takeover (RTO) of Asia Brands.

“My guess is that it could propose the RTO as Trackland is in the same sort of industry as Asia Brands.

“So if it injects its business into the group, then for sure, Asia Brands can recover [financially].

“This exercise will help it to repay some of its debts, but it will not be totally out of the woods, so something else needs to happen in which it can solve the rest [of its financial issues],” the fund manager says.

Asia Brands is involved in the retailing and distribution of baby apparel and lingerie, whereas Trackland deals in the textile knitting, dyeing and manufacturing of garments, including the trading of mens, ladies and children’s apparel but not baby apparel or lingerie.

The company declined to comment when queried by FocusM.

In a circular to shareholders, Asia Brands says Trackland plans to expand into the downstream garment manufacturing and retailing industry as it had done with its previous business acquisitions from Asia Brands.

“As such, Trackland’s proposed investment of a major stake in Asia Brands is a continuation of its business and expansion plans to further grow its group of companies’ businesses.

“Upon completion of the proposed share issue, Asia Brands will become Trackland’s associate company.

“It will benefit from potential economies of scale and synergies between the two groups of companies which are in related and complementary businesses,” the circular says.

It should be noted that one of Trackland’s directors is businessman Datuk Seri Tan Thian Poh – the founder and managing director of the Siang Poh group of companies.

Siang Poh is a vertically integrated textile group involved in the manufacturing and distribution of textile and apparel for more than 30 years.

 

Helping hand

This is not the first time Trackland has stretched out a helping hand to other companies in the garment and textiles industry.

In 2014, it extended a cash advance of RM50 mil to financially strapped garment maker Hytex Integrated Bhd.

Of the amount, RM45 mil was to be used to pay off its debts with the balance set aside for working capital. However, Hytex was eventually delisted in January 2015.

Trackland, which was incorporated on Sept 30, 2011, did not fare well in its FY17 ended March 31.

Based on Companies Commission of Malaysia filings, Trackland reported a net loss of RM250,864 against a net profit of RM693,850 in the previous year.

Revenue was slightly higher at RM27.97 mil versus RM27.34 mil.

Trackland is controlled by Thian Poh, Grace Tan, Collin Tan, Hwang Bee Kaim and David Tan with 20% stake each in the company.

Trackland’s emergence as the new major shareholder in Asia Brands is not surprising, given its long standing relationship with it.

In September 2016, Asia Brands entered into a non-binding term sheet with Trackland for the proposed disposal of its entire stake in B.U.M. Marketing (Malaysia) Sdn Bhd (BUMSB) for RM7.2 mil.

BUMSB is principally involved in the business of trading and retailing in adult and children’s wear, care and related products through heavy traffic and retail boutique outlets and distributors.

This means Asia Brands will no longer have a casualwear division as part of its group, but will instead retain and focus on its babywear and innerwear divisions.

It recorded a loss before interest, taxation, depreciation and amortisation of RM9.42 mil and RM32.38 mil for FY16 and FY17 respectively.

“Asia Brands decided to dispose BUMSB as it did not have the resources to turn the company around.

“Concurrently, it could not raise funds for the repayment of the RM10 mil Islamic medium-term notes (IMTN) which was due on March 16, last year,” Asia Brands previously said.

Prior to the BUMSB transaction, Trackland already had a trading relationship with Asia Brands for about six years.

It owns two subsidiaries – Hing Yiap Trading Sdn Bhd and Hing Yiap Knitting Sdn Bhd — which were acquired from Asia Brands (formerly known as Hing Yiap Group Bhd).

Hing Yiap Trading is a wholesaler of ready-made garments and fabrics, while Hing Yiap Knitting’s primary business is textile knitting and garment manufacturing .

In Dec 2011, Asia Brands entered into a sale and purchase agreement with Hing Yiap Trading to dispose a factory in Kepong.

The disposal was completed in Aug 2012, and from 2013 to 2015, Hing Yiap Trading supplied Manchester United Football Club branded apparel to BUMSB.

 

Cost effective

The proceeds raised from the proposed share subscription are expected to be utilised for repayment of the IMTN.

Asia Brands said the proposed share subscription was the most cost-effective method to raise capital to meet its short-term needs with the part repayment of IMTN and “the most expeditious way to raise funds from the capital market as opposed to other forms of fundraising”.

However, its auditors expressed an unqualified opinion of the financial statements of Asia Brands for FY17, ended March 31.

The auditors had drawn attention to the material uncertainty related to its going concern because it had net current liabilities which arose from the reclassification of IMTN to current liabilities.

This was a result of non-compliance with financial covenants as required in the IMTN.

The part repayment of IMTN will address concerns of its holders on the recoverability of the loan to Asia Brands, liquidity, and the company’s financial position.

In addition, the gearing ratio will improve from 0.99 times to 0.66 times upon part repayment of the IMTN.

For its Q3 ended Dec 31, last year, Asia Brands posted a narrowed loss of RM4.5 mil from RM14.9 mil a year ago, due to a one-off bulk sale of Bontton and Diesel casualwear stock in Q3 FY17.

However, its revenue was lower at RM35.5 mil, from RM47.8 mil.

Following the tough retail environment, Asia Brands has also closed more consignment stores and outlets in its continued effort to streamline operations and reduce losses.

For its baby wear division, the company closed 29 stand-alone outlets and 78 departmental store consignment ones in FY17.

As for its innerwear division, 14 stand-alone outlets and 41 departmental store consignment ones were closed.



This article first appeared in Focus Malaysia Issue 274.