This article first appeared in The Edge Financial Daily on February 18, 2020

KUALA LUMPUR: The legal battle between Scomi Group Bhd and its two lenders, businessman Tan Sri Wan Azmi Wan Hamzah and Gelombang Global Sdn Bhd (GGSB) will start on Thursday.

The legal dispute is related to the claim of ownership of a 37.2% equity stake in Scomi Energy Services Bhd, a public-listed subsidiary of Scomi Group.

Scomi Group has pledged part of its Scomi Energy stake for RM42 million loans from Wan Azmi and GGSB, the private investment vehicle of Datuk Mohd Zakhir Siddiqy. The duo lent RM21 million each to the financially ailing company to ease its tight cash flow.

The loans were extended to Scomi Group for a period of six months. The financial aid came two months after Scomi Group announced its restructuring plan, which is expected to raise up to RM214 million via rights issue to recapitalise the company.

Scomi Group defaulted on the loan repayments last month. As a result, the lenders wanted to take over the shares pledged to cover their losses. However, last Thursday, Scomi Group obtained an interim injunction to stop the share transfer. It also applied for restraining orders against the two parties to stop them from terminating the irrevocable undertaking in relation with the proposed rights issue.

The injunction came one day before the duo wanted to transfer the shares.

The discontent is that the proposed restructuring plan Scomi Group appears to have little progress, it appears that there is not much concerted effort to pull it through.

Wan Azmi, when contacted, said he had received notification of the injunction and stopped the transfer of the 18% Scomi Energy stake into his name. Nonetheless, Zakhir managed to transfer the shares into his account. The latest filing to Bursa Malaysia shows that Zakhir has emerged as a substantial shareholder with 18.1% stake.

Given that the share transfer has taken place, a source close to Scomi Group told The Edge Financial Daily that the company is expected to announce another litigation proceeding today against Zakhir.

Wan Azmi, however, did not hide his unhappiness on the progress of the restructuring in Scomi Group, during a meeting with The Edge Financial Daily saying that the restructuring exercise is ‘dead’, in his view.

“It calls for a fresh start. My advice, stop flogging a dead horse!” he commented.

Interestingly, court documents showed that one of the arguments posed by Scomi Group for the injunctions took a potshot at Wan Azmi’s age of 70 years, with the argument saying that it would be difficult for the company to recover any damages if allowed by the court.

When asked, Wan Azmi gave a no-filter response. “Between my advanced years and Scomi Group’s balance sheet, you will have to believe I should comfortably outlast Scomi Group’s life expectancy.”

White knights riding on rough patches

“Scomi Group is not a simple company. There is a wide array of issues to tackle, and participants must expect that there may be some delays [in implementing the plan],” said the source, who declined to share the latest updates on the corporate exercises.

“Now, the main thing being disputed is whether the investors have honoured the letter of undertaking in relation with the [proposed rights issue],” the source added.

The source referred to the restructuring proposal in May 2019, when Scomi Group managed to obtain irrevocable undertakings from five parties to subscribe to the rights issue.

This includes its chief executive officer (CEO) Sammy Tse, its single largest shareholder with 24.4% stake IJM Corp Bhd, Hong Kong-based Sharp Ascend Ltd (SAL), as well as Wan Azmi and Gelombang Global.

SAL, which is owned by Bruneian businessman Mohamad Shu’if Mohamad Hussain, was the first party to be hailed as Scomi Group’s white knight when the restructuring exercise was unveiled.

According to Scomi Group, SAL was supposed to provide RM20 million advances to the company. However, SAL did not pump in that amount.

It is understood that Wan Azmi and Mohd Zakhir then entered the fray after they were approached by Scomi Group’s former CEO Shah Hakim Zain, who currently is the company’s non-executive director.

Wan Azmi and GGSB’s undertaking underlined that their RM42 million loans will be offset by the rights shares when they are issued. Tse had also extended RM3 million to Scomi Group under similar arrangement.

Scomi Group said it has received word from SAL that it remains committed to subscribe to the rights issue by the value of up to RM20 million.

 A question on leadership and direction

Scomi Group’s CEO Tse, who entered the company in 2018, was previously touted as someone who would help open doors to the China market for Scomi’s rail businesses.

However, until now, Scomi Group, with all its technology in the rail division, has struggled to secure new projects. Furthermore, it does not have the balance sheet to do so. In its current state, Scomi Group would not want to part with its stake in Scomi Energy, but there has been no improvement in the two companies in the last two years.

On the other hand, Scomi Energy, too, is a Practice Note 17 company with its own debt problems to boot. In 10 days (Feb 28), Scomi Energy risks defaulting on its bonds worth RM55 million, after a second request to extend the deadline for the payment.

Both stocks are currently trading at record lows. Scomi Group last closed at 3.5 sen with a market capitalisation of RM38.29 million, while Scomi Energy share price closed at six sen, valuing the oil and gas outfit at RM140.15 million.

All said, one thing for sure, even with a successful takeover of Scomi Energy shares by the Wan Azmi and Mohd Zakhir, the financial struggle in both companies will be far from over.