Contents :

1.0 Introduction

The Board of Directors of Engtex Group Berhad (536693-X) ("Engtex") wishes to announce that Engtex Metals Sdn Bhd ("EMSB") (342663-H), a wholly-owned subsidiary of Engtex, had on 6 May 2003, entered into a Sale of Assets Agreement ("the Agreement") with Perwaja Steel Sdn Bhd ("PSSB") (187922-H) to acquire the entire wire mesh plant located in Shah Alam ("the Plant") for a total cash consideration of Ringgit Malaysia Six Million Five Hundred Thousand (RM6,500,000) only (referred to as the "Acquisition").

2.0 Particulars of the Plant

The Plant comprises wire mesh machines, wire straightening machines, cold rolling lines, accessories and spares. All the machines, acquired by PSSB in 1994, are in good working condition and used for less than two years. The Plant has stopped operating for more than five years. The estimated monthly capacity of the Plant is 5,000 to 8,000 tons.

The information of cost and net book value of the Plant is not readily available from the Vendor. Based on the indicative price quoted by a local machinery supplier, the Plant is worth RM7,500,000.

3.0 Purchase Consideration

The Plant will be acquired free of any encumbrances. The purchase consideration of RM6,500,000 was arrived at on a willing buyer and willing seller basis based on the existing condition of the Plant on an "as is where is" basis. Refer to Note 10.0 for the payment term of the Agreement.

The purchase consideration will be funded by bank borrowings and/or internally generated funds.

4.0 Financial Effects

The Acquisition will not have any effect on the share capital and substantial shareholders shareholdings of Engtex, and is not expected to have a significant effect on the earnings per share and net tangible assets per share of Engtex for the financial year ending 31 December 2003.

5.0 Information on EMSB

EMSB was incorporated on 6 May 1995 in Malaysia under the Companies Act, 1965 as a private limited company under the name of Alperton Sdn Bhd. It assumed its present name on 21 November 1996. The authorised share capital of EMSB is RM5,000,000 comprising 5,000,000 ordinary shares of RM1.00 each of which 2,500,000 ordinary shares have been issued and fully paid-up.

EMSB is principally involved in the manufacturing of welded wire mesh and hard drawn wire and operating a steel service centre in the Klang Valley.

6.0 Information on Vendor

PSSB was incorporated on 11 October 1989 in Malaysia under the Companies Act, 1965 as a private limited company. The authorised share capital of PSSB is RM2,000,000,000 comprising 1,500,000,000 ordinary shares of RM1.00 each and 500,000,000 preference share of RM1.00 each. The issued and fully paid-up share capital of PSSB comprises 916,180,704 ordinary shares of RM1.00 each and 300,000,000 preference share of RM1.00 each.

PSSB is principally involved in the manufacturing and sale of steel billets, wire rods, bars, wire mesh and other steel related products.

7.0 Approval Required

The Acquisition is not subject to the approval of Engtexs shareholders or any relevant authorities.

8.0 Directors and Substantial Shareholders Interest

None of the directors and/or substantial shareholders and/or persons connected with a director or substantial shareholder has any interest, whether direct or indirect, in the Acquisition.

9.0 Rationale for the Acquisition

As described in the Prospectus of Engtex dated 27 June 2002, Engtex has planned to construct a factory and office building on a piece of vacant industrial land in Mukim of Ijok, Kuala Selangor belonging to EMSB for the purpose of relocating the existing manufacturing activities and for future expansion. The Acquisition will increase its present manufacturing capacity in line with its ongoing expansion plan, enable cost effective production through economies of scale and consolidate Engtexs position to be one of the major producer of wire mesh in the local market in future.

10.0 Salient Terms of the Sale and Purchase Agreement

A deposit of RM1,300,000 representing 20% of purchase consideration has been paid to the Vendor upon signing the Agreement. The balance purchase consideration of RM5,200,000 shall be payable within 45 days from the Agreement date. In the event that EMSB is unable to pay the balance purchase consideration within the time frame given, the Vendor would grant an extension of 45 days subject to the interest of 7% per annum. Any further extension of time will be at the sole discretion of the Vendor.

Both parties agreed that the decommissioning and removal of Plant can be done immediately upon signing the Agreement and the risk of Plant shall be transferred to EMSB at the time when EMSB notifies the Vendor that the Plant is ready for decommissioning. Notwithstanding the delivery and passing of risk of the Plant, the legal ownership of the Plant shall not pass to EMSB until the Vendor has received the purchase consideration in full.

Any variation of the terms of the Agreement shall be evidenced in an addendum or supplementary agreement hereto and signed by both parties.

11.0 Statement by Directors

The Board of Directors of Engtex, having taken into consideration all aspects of the Acquisition, is of the opinion that the Acquisition is in the best interests of Engtex.

12.0 Prospects and Risk Factors of the Acquisition

The Acquisition will enhance Engtexs production capacity, its market share and overall cost effectiveness through economies of scale.

The following are some risk factors in relation to the Acquisition:

i) Availability of Resources

Engtex has been established as the premier provider of pipes, valves and fittings ("PVF"") products. Its principal activities also involve the manufacturing of steel PVF, pipe asphalt/coatings, bitumen products, hydrants, manhole covers, welded wire mesh and hard drawn wire. Engtex enjoys close business association with its vendors and suppliers. Engtex does not rely on any of its vendors for its raw materials in order to circumvent the risk of shortage of raw materials. The Plant has high-end technology application and therefore retraining of existing workers and recruitment of skilled workers is inevitable in producing good quality products. Any delay in deploying manpower and financial resources would have a material adverse effect on the business, financial condition and results of operations. Engtex plans to engage the manufacturer of the machinery to undertake the commissioning works and training of local workers for a period of approximately 2 months. In addition, Engtex has been in the steel related products and hardware industry for more than 18 years and EMSB has been operating a steel wire mesh plant since 1998. As such, Engtex views the Acquisition as a facilitator to accelerate the expansion of its manufacturing arm and will have sufficient knowledge to operate on a larger scale manufacturing activities. Engtex also believes its current listing status, strong market presence, continuous support from its financiers, customers and suppliers, and wide distribution network will provide a strong impetus for business continuity.

ii) Competition

The wire mesh business is not insulated from competition both locally and abroad. Its ability to compete in the market place are very much dependent on the ability of Engtex to properly manage the manufacturing plant, monitor the production output, cost and reject rates, and produce products that can be competitively priced. Engtex intends to implement the International Organization for Standardisation ("ISO") accreditation program to ensure its products meet the standards set.

iii) Raw Materials Prices

The fluctuation in steel prices is dictated by the market forces of supply and demand, which can be either favourable or adverse. There is a potential risk that a material increase in steel prices will have adverse effect to the profitability of the manufacturing sector if such price increase cannot be passed on to the consumers.

iv) Political, Economic and Business Risks

Adverse development in political, economic and regulatory condition in Malaysia and abroad could affect the profitability of the manufacturing activities. Such political, economic and business uncertainties include the risk of war, outbreak of diseases, product protectionism, liberalisation of market arising from Malaysias commitment to Asean Free Trade Area ("AFTA") and World Trade Organisation ("WTO"), restriction on the transfer of technology and know-how, changes in interest, foreign exchange and taxation rates, and changes in import tariff and tax incentive policies. As wire mesh products are used by the construction industry, Engtex is not insulated from business risks inherent in this industry and overall economic condition of the country. Although Engtex will seek to limit these risks through its extensive network of customer and supplier base, prudent management policies and maintaining good relationship with its customers and suppliers, no assurance could be given that any change to these factors would not have any material adverse impact on Engtex business.

13.0 Estimate Timeframe for Completion

The Acquisition is expected to be completed by August 2003.


This announcement is dated 8 May 2003.

Query Letter Contents :