Kinsteel Bhd has forged a strategic alliance with Maju Holdings Sdn Bhd, which will turn the latter's wholly-owned subsidiary Perwaja Steel Sdn Bhd into one of the largest fully integrated steel players in Malaysia and the region.

Under a conditional agreement between Maju and Kinsteel, both parties will manage Perwaja, according to a joint statement from the companies yesterday.

The deal, worth RM297.6mil, involves Kinsteel acquiring 51% equity interest in Perwaja and 51% equity interest in Maju's Gurun assets, consisting of a bar and wire rod mill, beam and section mill, wire conditioning, nail processing and wire mesh factories with total annual capacity of 1.1 million tonnes.

Maju would retain 49% equity interests in Perwaja and the Gurun assets, and acquire a substantial stake in Kinsteel.

The statement said the deal would be settled via RM100mil cash, issuance of 60 million new Kinsteel shares at RM1.36 each, with the balance RM116mil to be settled by deferred payments.

The exercise is expected to be completed by the second quarter of next year.

Maju executive chairman Tan Sri Abu Sahid Mohamed said Perwaja and Kinsteel had been business partners for a long time, and that Kinsteel managing director Datuk Pheng Yin Huah was also a close friend.

“We are both very excited over this partnership and believe that together, we can and will make things happen,” he said.

Pheng said: “The strategic alliance with Maju is in line with Kinsteel’s plans to strengthen our presence in the local steel industry.”

With this strategic alliance, he said Kinsteel group was now a fully integrated steel manufacturer through diversification into upstream activities, including the production of direct reduction iron (DRI) and billets, and moving further downstream into steel sections and wire rod manufacturing.

He added that Kinsteel was the only producer of U-channel bars in Malaysia and Perwaja the sole maker of DRI and sections domestically.

Perwaja is also the only producer of beam-blanks and blooms and has one of the largest billet plants in the country.

“Combined, our partnership will play a dominant role in the steel industry,” Pheng said.

The combined entity will, more importantly, be one of the most operationally efficient and cost effective in the region.

Sahid said Perwaja had recorded healthy growth and profitability since 2003 and he was confident the company would register a profit this year.

He said the partnership would play a key role in elevating Perwaja to a higher level and, in the process, propel Malaysia into the forefront of the steel business in the Asia-Pacific.

Maju and Kinsteel also anticipate other potential synergistic benefits from the partnership such as cost reduction, wider customer base, major share of the domestic market and export potential in the region.