Friday 29 Mar 2024
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This article first appeared in Corporate, The Edge Malaysia Weekly, on August 29 - September 4, 2016.

GENERAL Technology Sdn Bhd (GT), the largest shareholder of loss-making electrical and mechanical engineering contractor YFG Bhd, is looking for a white knight to save the group if the other shareholders approve its bid to remove the entire board.

However, this last-minute effort to save the group hinges on a couple of things — Bursa Malaysia’s approval to extend the September deadline for YFG to present its regularisation plan in relation to its PN17 status, and an extension of the restraining order against its creditors. 

Late last Friday, YFG announced that it had been granted on the same day an extension of the restraining order. The restraining order is part of the group’s scheme of arrangement to regularise its affairs, the announcement said. 

Be that as it may, did GT’s move compel YFG to act to expedite the application for the extension?

“The situation is getting from bad to worse, seeing that the company failed to extend the restraining order against its creditors, as well as the upcoming deadline of September set by Bursa Malaysia in relation to its PN17 status,” says GT director Jeremy Lim Chin Keong in an email reply to The Edge’s questions.

“GT will continue to search for a white knight and therefore needs the support of the shareholders to allow the new board the ability and opportunity to explore. We believe that with a new board, we can do better, and [do it] with greater urgency.”

To recap, YFG announced last Wednesday that it had received a special notice from GT to convene an extraordinary general meeting (EGM) to vote on the removal and appointment of its directors. As at April 19, GT held a 11.7% stake in YFG.

GT has submitted a motion to remove the whole board, including managing director Lim Chong Ling and non-executive chairman Dr Roslan A Ghaffar. The investment holding company is nominating six persons to the board. 

In a statement to the media after YFG’s announcement, Lim said, “All in all, we believe that the removal and replacement of the board will pave the way for fresh ideas and new beginnings for the group. We would like to reiterate that this exercise is initiated in the best interest of all long-suffering shareholders of YFG.

“We urge all shareholders to take this matter into serious consideration during the upcoming EGM and work cohesively towards a brighter future for the group,” he said.

YFG’s fortunes have gone from bad to worse after a RM256 million contract to construct a mixed-use development in Jalan Haji Saman, Kota Kinabalu, was rescinded by the developer, Palikota Sdn Bhd, on Nov 19, 2014. The contract was awarded to YFG’s unit YFG Trolka Sdn Bhd on Aug 1, 2013.

According to YFG’s filing with Bursa Malaysia, the contract was for the construction and completion of a premium mall with four levels, including two basement levels, a five-level car park and three blocks of 20-storey super condominiums in the waterfront area.

Palikota claims that YFG Trolka failed to “proceed regularly and diligently with carrying out works” and failed to rectify the default within 14 days of the receipt of the architect’s letter dated Oct 28, 2014.

YFG claims that the construction was 12% completed when the contract was terminated.

Immediately after announcing the termination of the contract, YFG applied to the High Court of Malaya in Kuala Lumpur for an injunction against Palikota from calling a RM12.8 million performance bond issued by United Overseas Bank (M) Bhd.

YFG’s unit YFG Engineering Sdn Bhd also saw the termination of its RM110 million contract to construct a 13mw biomass power-generation plant in Bera, Pahang, on Aug 5, 2015. No reason was given by the project owner, Agni Power Sdn Bhd.

Even before these projects had been terminated — and contributing to the rapid decline of YFG — the group had not been in a good financial position.

In the financial year ended June 30, 2014 (FY2014), despite a 12% increase in revenue to RM152.5 million, YFG recorded a net loss of RM4.28 million, compared with a net profit of RM4.6 million in the previous year.

For the 15-month period ended Sept 30, 2015 (15MFY2015), YFG suffered a net loss of RM45.3 million on the back of a revenue of RM70.9 million. (In April 2015, YFG changed its financial year end to Sept 30).

For the nine-month period ended June 30, 2016 (9MFY2016), YFG was in the black, registering a net profit of RM16,000 on the back of a revenue of RM47.7 million, compared with a net profit of RM847,000 in the previous corresponding period.

As at June 30, YFG had RM82,000 in cash and bank balances, and short-term borrowings of RM27.4 million. The group also had a RM3 million bank overdraft. Its accumulated losses stood at RM83.88 million, compared with a share capital of RM60.9 million.

However, all is not lost. The group has shown that it can secure contracts, especially in its mainstay — the mechanical and electrical engineering sector. 

YFG Engineering Sdn Bhd on Oct 7, 2014, became a nominated sub-contractor to MMC-Gamuda KVMRT (T) Sdn Bhd for the mechanical and electrical works for Package 3 of the Klang Valley MRT — Sungai Buloh — Kajang (Stadium Merdeka Station) line for a sum of RM36.7 million.

The company also won a RM17.4 million contract for electrical installation in a Cyberjaya residential property project built by Pembinaan Mitrajaya Sdn Bhd for Symphony Hills Sdn Bhd. The job was to be completed on Aug 11.

On March 8, 2014, YFG Trolka won a RM42.4 million contract for the construction of a commercial development-cum-bus terminal for Kota Kinabalu City Hall. The contract was to be completed on Jan 12.

 

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