DUE to the unprecedented demand and production of highly sought-after nitrile gloves caused by the pandemic, there is a shortage in nitrile butadiene latex (NBL) –a crucial raw material used for the production of nitrile gloves – across the world leading to all-time high cost in securing NBL supply.
On the local front, NBL which is also referred to as butadiene accounts for 70% of the total gloves exported from Malaysia.
To meet the demand and overcome the shortage of NBL, Hong Seng announced yesterday that its wholly-owned subsidiary Hong Seng Industries Sdn Bhd has accepted the letter of offer issued by Northern Corridor Implementation Authority (NCIA) for the sublease of a 105-acre industrial land located at Kedah Rubber City (KRC) for a total cash consideration of RM45.57 million.
According to a filing with Bursa Malaysia, the letter of offer is subject to the definitive sublease agreement to be entered between Hong Seng and NCIA, likely to be within 90 days from the date of the announcement. The period of sublease is 60 years with an option to renew for a further period of 30 years.
Upon acceptance of the letter, HS Industries will be paying 5% of the consideration, which will be funded by Hong Seng via the proceeds received from the conversion of irredeemable convertible preference shares.
In the event that both parties reach the sublease agreement, the balance consideration (being 95% of the consideration) will be funded via a combination of internally generated funds, bank borrowings, proceeds from the exercise and conversion of the convertible securities of the group and/or future fundraising exercises.
“HS Industries is desirous of building and operating a NBL manufacturing plant, as it will provide a timely opportunity to secure constant internal supply for our subsidiary, Hong Seng Gloves Sdn Bhd’s plant in Kedah and at the same time, filling the vacuum in the NBL shortage to capture the market,” Hong Seng executive chairman Datuk Teoh Hai Hin commented.
The proposed NBL project, if it materialises, will enable Hong Seng to delve into the end-to-end of the nitrile glove production supply chain from the raw material to the final consumer product, besides facilitating the long-term growth potential as well as potentially improve the financial performance of the group moving forward.
Teoh added the plant will ideally enable the group to be an integrated glove and NBL manufacturer in Malaysia by having both upstream and downstream segments of the glove manufacturing supply chain. – Feb 17, 2021
