This article first appeared in The Edge Malaysia Weekly on May 22, 2017 - May 28, 2017

A number of interesting developments at PDZ Holdings Bhd — linked to the shipping company selling its main operating unit, Perkapalan Dai Zhun Sdn Bhd, on Dec 30 last year to Salvage Point Ltd for a mere RM1,000 — have gone largely unnoticed despite the questions they raise.

In its announcement on Dec 30, PDZ says the sale of Perkapalan Dai Zhun is free from all claims, charges, liens, encumbrances and equities. It also says its shipping business will be undertaken by PDZ and or other subsidiaries within the group.

On the RM1,000 price tag, PDZ says, “The disposal consideration was paid in cash and is on a willing buyer, willing seller basis, after taking into consideration the net negative liability value of RM35.21 million of shareholders’ funds of Perkapalan Dai Zhun based on its management accounts as at Nov 30, 2016.”

PDZ’s main assets are two ageing ships — PDZ Mewah, built in 1993, and PDZ Maju, built in 1997 — both of which have since been arrested. The arrest of a ship refers to its seizure by authorities pursuant to maritime claims against the owner.

PDZ’s two vessels were controlled by Perkapalan Dai Zhun until late November last year, when they were transferred to the parent company. The change of ownership of the vessels was reflected in the Registrar of Malaysian Ships, on Dec 6.

Whether PDZ is required to make an announcement on this change in ownership is not known.

“It was the year end, everyone was on leave (so) no one saw the announcement of PDZ selling Perkapalan Dai Zhun. It caught many by surprise, that the operating company [Perkapalan Dai Zhun] had been sold,” an executive at a shipping company says.

It is worth noting that Perkapalan Dai Zhun was PDZ’s main revenue generator, accounting for up to 93% of revenue in FY2015.

In the Dec 30 announcement, PDZ says the rationale for the disposal was in line with its restructuring exercise to reduce the number of operating units that are no longer needed for future operations.

Market observers say the moves by PDZ may be considered “manoeuvring” the company, possibly to avoid being classified under PN17 under Bursa Malaysia’s listing requirements.

Note that the criteria for PN17 include the winding up of a listed company’s subsidiary or an associated company that accounts for at least 50% of the total assets employed of the listed issuer on a consolidated basis.

The ships had a total net carrying value of RM10.27 million as at Dec 31, according to PDZ’s latest annual report. The group’s total assets employed stood at RM42.51 million.

Nevertheless, note that liquidators Heng Ji Keng and Andrew Heng of Baker Tilly were appointed for Perkapalan Dai Zhun on April 13, according to filings with the Companies Commission of Malaysia (CCM).

Ships arrested

PDZ Mewah was arrested on Jan 24 for the non-payment for fuel supplies to Dan-Bunkering (Singapore) Pte Ltd, which was owed RM2.63 million as well as to CCK Petroleum Sdn Bhd for RM51,890, CCK Capital Ltd for RM404,574 and CCK Petroleum (Labuan) Ltd’s pending payment of RM571,564.

PDZ says the action by the bunker companies “is in relation to the non-payment of supply of marine fuel oil and/or marine gas oil supplied to the vessel, which was previously owned by Perkapalan Dai Zhun, a former wholly-owned subsidiary of PDZ”.

“On Dec 30, 2016, the company [PDZ] had completed the disposal of Perkapalan Dai Zhun, to Salvage Point. Prior to the disposal, the beneficial interest in the vessel was transferred from Perkapalan Dai Zhun to the company [PDZ] vide a settlement letter dated Nov 25, 2016,” it says.

In its announcement to Bursa Malaysia, PDZ says the expected losses from the arrest will be RM90,000 to RM100,000 per month, as a result of the additional costs arising from purchasing slots from third-party vessels as an interim measure to continue to provide customers with the same services as provided by PDZ Mewah. Nevertheless, PDZ’s lawyers say that it “has a strong, arguable case to challenge the arrest and the setting aside of the claims”.

PDZ Mewah’s net book value as at end-June 2015 was RM4.68 million.

PDZ Maju, meanwhile, was arrested on Feb 21 this year for the non-payment of RM563,311 for the supply of bunkers to Continental Platform (M) Sdn Bhd. PDZ announced the arrest on April 12.

The company says it had been “in negotiation with Continental Platform since the arrest of the vessel with a view to reach an out-of-court settlement. However, the board is of the opinion that negotiations with Continental Platform have since fallen through and, upon obtaining legal advice, has resolved to take steps to defend the arrest of vessel and any claims that may subsequently be filed and set it aside”.

The company estimates the losses for the arrest of PDZ Maju at RM45,000 to RM50,000 per month, as a result of the additional costs arising from purchasing slots from third-party vessels.

The net book value of PDZ Maju, based on the latest audited financial statements of PDZ for the financial year ended Dec 31, 2016 is RM5.55 million.

Collectively, the two ships owe RM4.22 million for bunkering.

Judging from PDZ’s statements, it looks like the company is going to contest the arrests.

PDZ just changed its financial year end to December from June. For the 18 months ended December, the company suffered a net loss of RM2.2 million from RM172.48 million in revenue.

As at end-December, the shipping company had fixed deposits with licensed banks of RM1.73 million and cash and bank balances of RM6.49 million. It was debt free but had accumulated losses of RM85.55 million.

The owners of Salvage Point are not known. The only information provided is that it “is a company incorporated in the Seychelles with its business address at Global Gateway 8, Rue de la Perle, Providence, Mahe, Seychelles”.

A check on the CCM website indicates that Perkapalan Dai Zhun’s new directors, appointed on Jan 3, are Ong Tee Kein and Yong Ket Inn.

However the shareholding changes had yet to be noted on the CCM website, with PDZ Holdings still stated as wholly owning the company.

So, while its plans for Perkapalan Dai Zhun are not known, PDZ’s future also hangs in the balance.

Its largest shareholder is Perlaburan Mara Bhd, which had 23.29% equity interest as at April 3 this year.

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