This article first appeared in The Edge Malaysia Weekly on December 6, 2021 - December 12, 2021

THE problems seem to be piling up at TH Heavy Engineering Bhd (THHE), and it is unclear if the company will be able to get out of the rut it is in.

Last Wednesday, THHE announced that Bursa Malaysia had dismissed its application for an additional six months — until April 22 next year — to submit a regularisation plan to exit the cash-strapped Practice Note 17 category.

For perspective, THHE’s Oct 22 application for the extension of time would have been its eighth extension, had it been granted.

While THHE says it intends to submit an appeal against the rejection of its application, the trading of its securities will tentatively be suspended with effect from Dec 10, and it is to be delisted on Dec 14.

“The question is, will the controlling shareholder UJSB (Minister of Finance Inc-owned Urusharta Jamaah Sdn Bhd) fork out more money to sustain the company if it is delisted? Is it worth it for UJSB to pump more money in?” one oil and gas (O&G) executive asks.

To recap, UJSB has a 64.45% stake in THHE, after it bought over pilgrim fund Lembaga Tabung Haji’s ailing assets at end-2018. UJSB paid RM380.3 million for the block of 334.16 million shares in THHE held by Lembaga Tabung Haji, compared with its market value of RM10.02 million. Put another way, UJSB paid a whopping premium of 3,694.06% for the stake, and also RM315.45 million for 1.1 billion preference shares which had a value of RM16.46 million.

While UJSB has been grappling with its own issues, sources say THHE has its own set of problems. An immediate concern for THHE is to pay about RM20 million as part of a bond issue coming due.

Checks on THHE’s annual report for financial year 2020 (FY2020) indicate that there are two bonds due within one year — one for RM23.09 million and another for RM44.2 million.

The RM20 million bond could also be the result of a scheme of arrangement (SoA), which THHE undertook in late 2017.

What is worrying is that if THHE is delisted, an SoA between THHE and its creditors, and another SoA between THHE’s unit THHE Fabricators Sdn Bhd (TFSB) and its creditors — entered into at end-2017 — may unravel.

“A slew of lawsuits may follow a delisting. Creditors may seek the appointment of receivers to run the company (THHE) until it is wound down,” the O&G executive says.

To recap, secured creditors took a 22% haircut from RM210.58 million of debt to RM164.25 million. Out of this RM164.25 million, 74% or RM121.55 million was to be paid via cash while the remainder was to be paid via RM42.71 million in Islamic irredeemable convertible preference shares (ICPS-i).

Unsecured creditors were owed RM421.53 million but took a 50% haircut, resulting in RM210.77 million being owed to them. Out of this RM210.77 million, 75% or RM158.07 million was settled in cash while the rest, RM52.69 million, was to be settled via ICPS-i.

THHE’s proposed ICPS-i amounted to RM95.4 million, which the creditors will now be seeking to collect.

The first part, namely the cash payments, has been concluded but the second portion of the SoA involving the ICPS-i was dependent on Bursa Malaysia approving THHE’s regularisation plan.

And with the SoA falling apart, THHE will be without any protection and thus open to lawsuits from creditors seeking this RM95.4 million.

THHE’s only asset — its 56.79-acre fabrication yard in Pulau Indah, which was pegged with a value of RM126.48 million at end-2020 — is secured to creditors.

THHE’s unit TFSB — which also has an SoA — has secured and unsecured creditors of RM85.35 million and RM175.24 million respectively.

Among TFSB’s secured creditors, MIDF Investment Bank Bhd is owed RM70 million, and the repayment terms were broken down to immediate cash of RM5 million and the rest via sukuk repayable in tranches of RM10 million in 2019, RM15 million in 2020, RM20 million in 2021 and RM20 million in 2022.

The RM20 million due soon could stem from the sukuk owed to MIDF.

As at end-September 2021, THHE had RM110.48 million in short-term borrowings while its cash and cash equivalents were pegged at RM21.95 million.

For its nine months ended September 2021, it suffered a net loss of RM5.79 million on revenue of RM7.25 million. It is worrying that for its three months ended September, THHE’s revenue was a mere RM1.53 million, from which it suffered a net loss of RM1.29 million. Its net asset per share stood at 0.22 sen.

The Edge understands that UJSB had forked out over RM40 million to THHE to sustain the company in the last quarter, but this may not be sufficient.

“THHE’s burn rate is about RM3 million a month … very high for a company that is mired in debt and with only RM1.5 million revenue [for its third quarter of FY2021],” the O&G executive says.

It is also understood that UJSB is looking to shift THHE from Menara Bank Islam — where it is now located — to Platinum Park near KLCC, where UJSB has a tower and can accommodate THHE with cheaper rental, but is it too little too late?

THHE closed last Friday at 1.5 sen, translating into a market capitalisation of RM33.3 million.

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