TMK: Chemistry at work

“WE believe one plus one will equal more than two in the case of this deal.”

That is the optimism shared by TMK Chemical Bhd’s leadership regarding its proposed RM920mil acquisition of a 100% equity interest in Chemical Co of Malaysia Bhd (CCM).

Of interest, CCM is a wholly-owned subsidiary of Batu Kawan Bhd, making this a related-party transaction, as TMK is controlled by Datuk Lee Soon Hian, the brother of Batu Kawan’s chairman Tan Sri Lee Oi Hian.

The proposal is currently undergoing due diligence.

Nevertheless, TMK deputy chairman Leong Chao Seong and managing director Wong Kin Wah are confident that should the acquisition materialise, as targeted by the fourth quarter of this year, it will have a significant positive impact on the group’s operations.

The bigger picture

Speaking to StarBiz 7 on the rationale behind the acquisition, Leong says CCM is a highly attractive asset from a strategic perspective and is now significantly larger than when it was under Permodalan Nasional Bhd (PNB) before being taken private by Batu Kawan.

He notes that CCM now houses Batu Kawan’s entire industrial chemicals platform after a strategic corporate restructuring in 2025.

“After this proposed acquisition, the enlarged TMK group will have integrated manufacturing platforms with strategically located production facilities spanning the central, east coast, northern and southern regions of Peninsular Malaysia.

“This nationwide manufacturing footprint provides a strong platform to improve customer coverage, optimise logistics and enhance supply chain efficiency,” Leong says.

Combined with TMK’s experience in the chemicals industry, he expects synergies across the enlarged group to improve procurement efficiency through greater purchasing volumes and more efficient raw material utilisation.

“In short, we will be increasing scale and reducing cost. The proposed acquisition will create a key national chemicals platform, supporting domestic security of supply for essential base chemicals used across multiple industries,” he says.

On the funding structure, Wong says the RM920mil is expected to be financed through a combination of cash, borrowings and the issuance of new TMK shares to Batu Kawan.

“As such, Batu Kawan will hold at least 20% of the enlarged issued share capital of TMK upon completion of the deal, which means most of the consideration will be funded via share issuance.

“The final number of shares to be issued will be determined when the definitive terms are agreed,” Wong says.

He notes that TMK still has RM99mil in unutilised proceeds from its initial public offering (IPO), which had been earmarked for acquisitions and can be used to partly fund the transaction.

Wong adds that TMK has a strong balance sheet and sufficient debt headroom to finance the balance through borrowings, although the final debt quantum has yet to be determined.

“We are always committed to maintaining a prudent capital structure and robust balance sheet,” he says, adding that as the deal is a related-party transaction, it will be undertaken in full compliance with Bursa Malaysia’s Listing Requirements.

He says the proposed acquisition will be subject to approval by non-interested shareholders, while interested directors, major shareholders and their connected persons will abstain from deliberating and voting on the transaction, in accordance with the Listing Requirements.

“Principal advisers and independent advisers will be appointed by both sides to evaluate the terms and financial effects of the proposed acquisition, and advise the respective non-interested shareholders on whether the transaction is fair and reasonable and in their best interests,” he assures.

Operating synergies

Meanwhile, Leong says the businesses of TMK and CCM are highly complementary, with minimal overlap.

While TMK has built strong capabilities in chemical management, storage and logistics, he says CCM will bring leading manufacturing assets and an established portfolio of industrial chemical products to the enlarged group.

“The enlarged group would have a broader product offering, enabling us to provide more comprehensive solutions to customers while expanding our presence across multiple industrial sectors.”

He adds that the acquisition could also create one of Malaysia’s leading integrated industrial chemical groups, strengthening the domestic production and supply of essential base chemicals that support a wide range of downstream industries underpinning the country’s manufacturing sector.

“Having operated in the chemical industry for many years, we have a strong understanding of the business and believe the integration can be executed efficiently without significant risks,” Leong says.

With Batu Kawan set to become TMK’s second-largest shareholder upon completion of the acquisition, Leong says its proposed stake represents a strong vote of confidence in TMK’s long-term growth prospects and the strategic merits of the enlarged group.

Batu Kawan is expected to hold at least a 20% stake in TMK once the deal is completed.

“Having Batu Kawan as a significant shareholder aligns the interests of both parties and demonstrates a shared commitment to creating long-term value for all stakeholders.

“At this stage, however, there are no plans for further asset injections, joint ventures or other strategic initiatives. Our immediate priority is to complete the proposed acquisition and ensure a successful integration,” Leong says.

Positive outlook

Looking ahead, Wong says should the proposed acquisition proceed unhindered, TMK’s priority over the next one to two years will be to maximise the potential of the enlarged manufacturing and distribution platform.

“Our focus will be on optimising plant utilisation, improving logistics efficiency and realising cost synergies.

“The enlarged group’s products comprise essential industrial and base chemicals that underpin manufacturing across almost every sector,” he highlights.

Wong notes that demand is driven by the industrial cycle, with different industries leading growth at different points in time.

He says TMK expects demand to be supported by continued manufacturing expansion, fuelled by both foreign direct investment and domestic industrial investment.

He also anticipates upside from sectors currently operating below historical utilisation levels, such as the healthcare glove industry, although he notes that any recovery will depend on catalysts including stronger macroeconomic conditions, improving export demand and supportive government policies.

“(We also see) potential in strategic industries such as semiconductors, advanced electronics and the rare earth supply chain, where Malaysia is well positioned to move further up the manufacturing value chain.

“Ultimately, the strength of the enlarged group lies in its diversified product portfolio and customer base, enabling us to participate in multiple long-term industrial growth trends while remaining resilient across economic cycles,” Wong says.