This article first appeared in The Edge Malaysia Weekly on September 11, 2017 - September 17, 2017
LIQUIDATORS of Malaysian Newsprint Industries Sdn Bhd (MNI), which is winding up, are expected to put its assets up for sale by tender next month, sources tell The Edge.
According to one source, the proceeds from the sale will be used to fulfil MNI’s debt obligations, which amounted to some RM200 million as at July 31 (RM70 million were secured debt and the balance, unsecured debt).
“The open tender will likely involve the sale of MNI’s prized assets such as the 60ha freehold land in Mentakab (Pahang), the building and machinery. Potential buyers will be allowed to carry out due diligence,” says the source who insists on anonymity because he is not authorised to speak to the media. “Currently, MNI is occupying 40ha, and the remaining 20ha are forests.”
Last month, Lim San Peen of PricewaterhouseCoopers Advisory Services Sdn Bhd (PwC) was appointed interim liquidator of MNI, the country’s sole newsprint manufacturer.
This follows a decision by Hong Leong Industries Bhd (HLI), which has a 33.65% stake in MNI, and Media Prima Bhd, which owns 21.36% equity interest through its 98.17%-owned subsidiary, The New Straits Times Press (M) Bhd, to shutter the company due to declining newsprint demand and losses in the past thee years.
However, some quarters are concerned that MNI may face difficulty finding a buyer for the industrial land, which is located in Temerloh Industrial Park.
“So far, the liquidator has not finalised a model — whether to sell the assets as an operating plant or separately. Of course, it is better to find someone who will continue the operations there, although not necessarily in newsprint production. They (potential buyers) can use the plant to make some other products such as corrugated [cardboard for] packaging,” the source says.
“For the land the plant is sitting on, our understanding is that it could fetch around RM30 per sq ft, based on past transacted prices in the vicinity. But we understand that the independent valuer appointed by the liquidator has determined the value at only RM15 to RM20 psf.”
At RM20 psf, a back-of-the-envelope calculation shows that the 60ha parcel alone will fetch RM129.17 million.
As for the plant and machinery, the valuation will vary, depending on whether production is still running or otherwise.
According to MNI’s financial statements filed with the Companies Commission of Malaysia, its plant and machinery had a carrying value of RM504.44 million as at June 30, 2016. Its other assets included buildings (RM141.14 million), land (RM30.86 million) and office and computer equipment (RM1.69 million). All these made up the bulk of the company’s non-current assets of RM696.41 million.
MNI’s current assets included inventories worth RM31.4 million, receivables, deposits and prepayments, including derivatives worth RM24.59 million and cash and cash equivalents of RM28.73 million. The company had an accumulated loss of RM331.12 million as at June 30, 2016.
“Excluding the plant and machinery, based on management’s estimated realisable value for all the other assets, there will still be a shortfall of RM25 million to RM26 million for unsecured creditors. That is why the liquidator has decided to resume MNI’s production this month. When the machines are running, not only will they fetch a higher value, the potential buyers will not need to spend more money to restart them as well,” another source says.
“MNI still has some raw materials in its factory. If the liquidator sells all of them, it will be a loss because when MNI stopped production, raw material prices were falling,” he says, adding that the fixed cost of running the plant is RM3 million to RM4 million a month.
It is understood that MNI will restart production this month to cater mainly for its existing customers’ needs. Orders from new customers will require the approval of the liquidator.
MNI’s liquidation coincided with the decline in raw material prices, hence utilising its assets would generate some revenue, compared with selling them at a loss.
According to a July 15 creditors’ list sighted by The Edge, MNI’s major unsecured creditors include its employees, whose salaries payable amounted to RM1.34 million, Tenaga Nasional Bhd (RM4.57 million) and Infinity Logistics & Transport Sdn Bhd (RM5.06 million).
While it is unclear how much these creditors will be able to recover the sums owed to them, the Malaysian Companies Act 2016 requires that after fulfilling all secured debt, the remainder of the realisable asset value should first be used to pay cost and expenses of the winding-up process, including liquidator’s remuneration and audit cost, before settling employees’ remuneration and compensations.
The list also shows that MNI is still carrying shareholders’ loans of RM17.2 million — RM6.94 million from HLI, RM3.32 million from Rimbunan Hijau Group and RM6.94 million from Norwegian company Norske Skog Papers (M) Sdn Bhd.
Norske Skog holds a 33.65% stake in MNI and Rimbunan Hijau Group, controlled by Sarawak tycoon Tan Sri Tiong Hiew King, owns 11.34%.
While it is unclear whether the shareholders’ loans are secured, HLI and Media Prima on Aug 1 told Bursa Malaysia that they have collectively made a full impairment provision amounting to RM313.9 million for their respective carried amount of investment in MNI as at 2QFY2016.
Norske Group, meanwhile, in its 2QFY2017 quarterly disclosure, says it has recognised an impairment of NOK139 million (RM75.28 million) on the investment in MNI for the quarter under review, on top of the NOK205 million impairment it incurred back in FY2016. “In addition, a shareholder’s loan of NOK14 million was written off, which is included in the financial items,” it says.
Apart from the one-off losses, HLI, Media Prima and Norske Group say the liquidation of MNI will not have any other impact on their financial accounts going forward.
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