Oil and gas tanks manufacturer CN Asia Corp Bhd is set to be the largest shareholder of SMTrack Bhd after a debt settlement exercise owed by the latter's unit, SMT Turbojet Resources Sdn Bhd, to CN Asia's subsidiary, Southborn Capital Sdn Bhd through the issuance of 218 million new shares or a 14.2% stake.

KUALA LUMPUR (June 26): Oil and gas tanks manufacturer CN Asia Corp Bhd (KL:CNASIA) is set to emerge as the largest shareholder of radio-frequency identification (RFID) solutions provider SMTrack Bhd (KL:SMTRACK) with a 14.2% stake via a debt settlement exercise announced on Wednesday.

The debt settlement involves SMTrack issuing 218 million new shares to pay off a sum of RM7.63 million owed by its wholly owned subsidiary SMT Turbojet Resources Sdn Bhd to CN Asia’s wholly owned unit Southborn Capital Sdn Bhd — which is a licensed moneylender — at 3.5 sen per share.

The 3.5 sen issue price represents a 10% discount to the five-day volume-weighted average market price of SMTrack shares of 3.89 sen on June 18, said SMTrack in a bourse filing on Wednesday.

According to the filing, SMT Turbojet had in in February 2023 entered into a money lending agreement with Southborn Capital to borrow RM7 million with a 6% per annum interest rate. The loan was used for SMTrack's diversification activities which include beauty and wellness products and services, food and beverage services, and consultancy services for the oil and gas sector.

The company said it faced difficulties meeting repayment obligations due to constrained cash flows for working capital purposes, and hence proposed the debt settlement agreement.

It said the interest accrued on the RM7 million principal sum, calculated up to Nov 23, 2024, amounted to RM630,000.

“The proposed debt settlement is not expected to have any material effect on the earnings per share [EPS] of the company, save for the dilution to EPS as a result of the increase in the number of shares pursuant to the issuance of settlement shares,” said SMTrack.

As at the end of March 2024, SMTrack reported cash and bank balances of RM1.43 million, short-term borrowings amounted to RM9.62 million, and accumulated losses of at RM39.94 million.

The settlement exercise is expected to be completed by the fourth quarter of this year.

SMTrack’s share price, which has fallen over 41% year-to-date, closed unchanged at 3.5 sen on Wednesday, valuing the company at RM45.46 million. CN Asia closed unchanged at 16 sen, giving a market capitalisation of RM39.15 million.