Frankly Speaking: Some explanation needed

This article first appeared in The Edge Malaysia Weekly, on August 5, 2019 - August 11, 2019.
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On July 9, London Biscuits Bhd fell into Practice Note 17 status for non-payment of banking facilities of RM9.83 million, owed to the Bank of Nova Scotia. The company cited cash flow constraints as the reason for its inability to fulfil its debt obligations. Since the announcement of its loan default was made on July 3, London Biscuits’ market capitalisation has been slashed by half, from RM90.14 million to RM45.07 million last Friday.

Interestingly, London Biscuits looks rich in terms of assets. As at March 31, 2019, its total assets amounted to RM845.83 million with the bulk of it made up of property, plant and equipment. Furthermore, its net asset value per share stood at RM1.57.

While its cash and bank balances have been depleted by more than half from six months ago and its gearing level stood at around 90%, London Biscuits has a 20% stake, or 20.8 million shares, in Bursa Malaysia-listed consumer product company Khee San Bhd. At the prevailing market price of 30 sen per share, London Biscuits’ stake in Khee San is worth roughly RM6.2 million.

This covers just about two thirds of the outstanding amount.

Were there no options to settle the sum that only makes up 1% of its total assets prior to the default?

Now that it is in PN17, it has to submit a regularisation plan to the authorities within a year of the trigger date. It is also engaging with the bank’s solicitors on the amount owed.

The management should explain to shareholders why it allowed a RM9.83 million loan to default, which resulted in not only a 50% plunge in its market capitalisation but also put the company in PN17 status.

Interestingly, in addition to some movements in the boardroom, its largest shareholder, Meileelanusa Sdn Bhd, has been a net seller of the company’s shares since it fell into PN17.

Is there more to this than meets the eye?

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