The sub-lease, spanning an area of approximately 12,140 sq m (approximately 3 acres) was originally intended for a 20-year term with a total rental payment of RM8.53 million.
In a filing with Bursa Malaysia today, the group announced its agreement to cancel the sub-lease of the land originally intended for an integrated logistics services project with PPSB.
This decision comes as the group, which is also in the business of healthcare and financial services, is actively renegotiating with the Northern Corridor Implementation Authority (NCIA) to explore alternative land use and revised agreement terms.
This decision was a result of the prior choice to halt the progress of a proposed nitrile butadiene latex (NBL) manufacturing plant in Kedah Rubber City (KRC), by Hong Seng’s wholly owned subsidiary Hong Seng Industries Sdn Bhd (HS Industries).
NBL is the raw material used to produce nitrile gloves.
In line with the KRC NBL initiative, HS Petchem Logistics Sdn Bhd, a wholly-owned subsidiary of Hong Seng, outlined its intention to construct storage tank facilities in Penang for the storage of vital feedstocks such as butadiene and acrylonitrile petrochemicals.
HS Petchem received a notice from PPSB yesterday to terminate the letter of offer and associated sub-lease agreement.
In its statement, Hong Seng said it made a strategic decision to suspend the development of the KRC NBL project due to various factors including project requirements, funding requirements and external factors beyond the group’s control.
These factors included the “current weak market sentiment” in the glove industry, capital raising needs, and inflows of private and foreign investments, it added.
“These strategic moves were taken after considering the financial challenges, market uncertainties, risk mitigation and potential opportunities and with the objectives of minimising further costs, ensuring financial stability, and reallocating resources to explore alternative growth prospects,” it added.
Spanning 1,244 acres, KRC is the first dedicated rubber industrial park in Kedah. The project is a synergistic effort supported by Malaysia and Thailand to stimulate socio-economic development in the border region.
It will be developed into a “Rubber Corridor” that will link the region’s major rubber producers in the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT).
At the close of trade, Hong Seng’s share price was down 0.5 sen or 10% to 4.5 sen, valuing the group at RM229.9 million.