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 DNEX 4456 DAGANG NEXCHANGE BERHAD’s one-third market value wiped off on dispute with Chinese partner over SilTerra

KUALA LUMPUR (Nov 17): Shares of Dagang NeXchange Bhd (DNeX) hit limit down on Thursday (Nov 17), after its 60% investment in SilTerra Malaysia Sdn Bhd is stuck in limbo.

Its share price fell as much 30 sen or nearly 40% in the afternoon trading session, before closing at 50.5 sen, down 25 sen or 33.11%, slashing its market value to RM1.59 billion. The last time it fell below 50 sen was on Feb 11, 2021, when it traded at 43 sen.

With 300.33 million shares transacted amid the heavy selling pressure, DNeX topped the most-active list on Bursa Malaysia.

In a bourse filing on Thursday, DNeX said its wholly-owned subsidiary DNeX Semiconductor Sdn Bhd (DNeX Semi) had issued and served a notice of arbitration to commence arbitration proceedings against Mimastronics Technologies Co Ltd (MIMAS).

MIMAS is wholly owned by Tethystronics Technologies Co Ltd (TTCL), a special purpose vehicle ultimately owned by Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Center (CGP), which also holds 40% equity interest in SilTerra.

DNeX owns the remaining 60% of SilTerra. In March 2021, Khazanah Nasional Bhd sold then loss-making SilTerra to DNeX and the China-based equity fund for RM273 million cash.

DNeX and CGP Fund have committed to a capital injection of at least RM200 million by way of subscribing for new shares to be issued by SilTerra. Based on DNeX’s 60% stake, the capital injection by DNeX will amount to about RM120 million.

Both parties sought to opt for the issuance of irredeemable convertible preference shares (ICPS) in DNeX Semi, amounting to RM100 million, to be issued to and subscribed by MIMAS. This would result in MIMAS holding a 33% stake in DNeX Semi.  

The point of contention is whether prior approval is needed from the Ministry of International Trade and Industry (MITI) for the proposed investment.

MIMAS is of the view that such approval was not required and maintains that the shareholders agreement and subscription agreement, both dated Jan 21, 2022, are valid and enforceable.

However, DNeX disagrees.

“Vide MITI’s letter dated Feb 28, 2022, DNeX and CGP learned that prior approval from MITI was required in relation to the proposed investment,” said DNeX in the filing.

“DNeX and DNeX Semi consider such approval as necessary, more so in light of the terms and conditions of the shareholders’ agreement and subscription agreement which provide for MIMAS becoming a shareholder upon issuance of the ICPS and not their conversion. If so, this puts the [manufacturing] licence, and thus the operations of SilTerra, at risk.”

DNeX and DNeX Semi will seek the necessary relief to have the shareholders agreement and subscription agreement declared null and void.

Nonetheless, it said it does not expect any material financial impact from the commencement of the arbitration proceeding, other than legal cost to be incurred.

“SilTerra remains a 60%-owned subsidiary of DNeX Semi, which in turn is a subsidiary of the company. No material operational impact is expected [to] arise from the arbitration,” it added.

Arcadia Acres Sdn Bhd is the largest shareholder of DNeX with a 11.37% stake, followed by Taiwan’s Hon Hai Precision Industry Co Ltd (known globally as Foxconn Technology Group), which saw its stake pared down to 3.8% due to the dilution effect from the conversion and exercise of warrants in DNeX.

Hon Hai, the main assembler of Apple Inc’s iPhones, first emerged as a substantial shareholder of DNeX in June 2021, after acquiring a 5.03% stake.

It was reported that Hon Hai’s ultimate target is to have a direct stake in SilTerra.

The semiconductor boom has made SilTerra — though mainly producing low-end chips — a sought-after asset in the industry, more so after the outbreak of the global chip crunch, partly attributed to the tech war between the US and China.

It’s interesting to see if the dispute will lead to the emergence of a new shareholder in SilTerra.

http://www.theedgemarkets.com/article/dnexs-onethird-market-value-wiped-dispute-chinese-partner-over-silterra

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