This article first appeared in The Edge Malaysia Weekly on July 17, 2017 - July 23, 2017

IS privately held Malaysian Newsprint Industries Sdn Bhd (MNI) in financial difficulty? Market sources say some MNI shareholders have been going around to help it get loans from financial institutions as its financials are not looking good.

For its financial year ended June 2016, the company suffered an after-tax loss of RM19.44 million from RM435.32 million in sales. This is its second consecutive year of losses following an after-tax loss of RM17.01 million on revenue of RM405.5 million in FY2015.

As at end-June last year, its non-current assets totalled RM696.41 million while its current assets amounted to RM84.71 million and long-term debt commitments reached RM219.08 million. It had no short-term borrowings. Notably, it had negative reserves of RM150.67 million.

In fact, its reserves have been negative for the past 10 years, ranging from RM80.96 million in 2012 to as high as RM302.27 million in 2013.

Other than the two losses in FY2016 and FY2015, MNI only suffered one year of losses — in FY2008, to the tune of RM12.61 million. It managed to record after-tax profits ranging from RM8.5 million in FY2010 to RM66.34 million in FY2009.

While MNI may seem weak, its largest shareholders are heavyweights in their own right — Hong Leong Industries Bhd and Norwegian company Norse Skog Papers (M) Sdn Bhd each has a 33.65% stake, The New Straits Times Press (M) Bhd (NST) owns 21.36% and the Rimbunan Hijau group, 11.34%.

Hong Leong Industries is controlled by billionaire tycoon Tan Sri Quek Leng Chan while Rimbunan Hijau is controlled by Tan Sri Tiong Hiew King, who is also on Malaysia’s top 10 richest list. NST is wholly owned by Media Prima Bhd, whose largest shareholder is United Malays National Organisation, with a 19.05% stake held via Gabungan Kesturi Sdn Bhd and Altima Inc.

Norse Skog Papers (M) is wholly owned by Norske Skogindustrier ASA (Norwegian Forest Industries) an Oslo-listed pulp and paper company that is among the world’s leading producers of newsprint and magazine paper.

“Without the support of the shareholders, financial institutions may shy away from MNI as the company’s financials have not been good,” one banking source says.

It may seem odd that MNI is not doing better. After all, its shareholders are in the newspaper business. NST has under its stable The New Straits Times, Berita Harian and Harian Metro and their respective weekend publications. Rimbunan Hijau’s Ting has a 52.48% stake in Media Chinese International Ltd, which in turn owns Ming Pao, Sin Chew Daily, and Nanyang Siang Pau, among others.

While MNI may not have a monopoly in the newsprint business, it is arguably the most well-known supplier.

Even Star Media Group Bhd, publisher of the largest circulated, paid-for English daily in Malaysia, acquires some of its newsprint from MNI although it does not have a share in the company.

To put things in perspective, newsprint is among the most important elements in the newspaper business. While demand for newsprint is cyclical, and prices have been historically volatile, MNI reduces fluctuations in demand via Newsprint Offtake Agreements with its shareholders, which purchase, say, a minimum amount of 100,000 tonnes a year, representing 40% of MNI’s newsprint plant’s capacity.

MNI’s CEO Phang Kwok Keong is abroad and could not respond to The Edge’s emailed questions.

Already, the past two financial years of losses has had an impact on the shareholders. Norske Skog’s annual report last year said the Norwegian company had an impairment of NOK205 million (RM100 million) for the year ended June 2016 from its 33.65% stake in MNI.

“The carrying value of Norske Skog’s investment in MNI was NOK 151 million at Dec 31, 2016, which is approximately RM100 million lower than Norske Skog’s share (33.65%) of the equity in Malaysian Newsprints company financial statements,” the report stated.

Interestingly, Media Prima’s annual report last year said the carrying value of its investment in MNI was RM146.4 million as at Dec 31 that year but concluded: “Based on management’s assessment, no additional impairment charge is required on the carrying amount of MNI for the financial year ended Dec 31, 2016.”

It is not clear why there is a disparity, but Media Prima said that MNI’s net loss of RM47.2 million in FY2016 was “mainly attributable to the adverse effects of the market trend, resulted by the decrease in newsprint price”.

Media Prima added that in FY2015, MNI had RM33.92 million in net losses.

MNI also has a few charges unsatisfied. One was for RM50 million with Malayan Banking Bhd, created in December 2015, with regard to a piece of land in Mentakab, Pahang, possibly housing the company’s newsprint mill.

There is also an unsatisfied debenture with OCBC Bank (M) Bhd, created in March 2007 for RM700 million, for which the financial institution has the first fixed and floating charge over all of MNI’s assets and properties, revenues and rights.

In November 2008, MNI created a first legal charge with OCBC for RM650 million for its assets in Mentakab, Pahang.

While it is not easy to piece together what is happening in MNI without any explanation from the management, the picture painted thus far does not look good and it remains to be seen what its notable shareholders are going to do about it.

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