Thursday 28 Mar 2024
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This article first appeared in Corporate, The Edge Malaysia Weekly, on July 18 - 24, 2016.

 

THERE could be more surprises emerging at TH Heavy Engineering Bhd (THHE), the oil and gas facilities fabrication company that is 29.81%-owned by pilgrim fund Lembaga Tabung Haji (LTH), say industry sources. For one, bankers and financers that have lent money to THHE are said to be getting jittery over the company’s dampening prospects.

“At least two banks are asking about its (THHE’s) prospects and what we think about its business viability,” a competitor says.

A check with the Companies Commission of Malaysia (CCM) shows that THHE has five unsatisfied charges. Two are with RHB Bank Bhd: a RM200 million facility created on April 17, 2007; and another for RM30.25 million created on Dec 31, 2008. The others are a US$2 million facility (RM7.91 million at the current exchange rate) created on July 20, 2011, with AmBank (M) Bhd; a RM1 million facility from Malayan Banking Bhd created on Nov 10, 2011; and a RM10 million facility from AmIslamic Bank Bhd created on Jan 4, 2012.

However, industry sources say these debts could already have been settled by THHE but have not been updated in CCM filings.

In THHE’s annual report, its principal bankers are stated as Malayan Banking, Maybank Islamic Bhd, Asian Finance Bank Bhd, Al-Rajhi Bank Bhd, Affin Islamic Bank and Kuwait Finance House.

Banking sources say Asian Finance Bank could have large amounts owing to it over an unsecured revolving credit facility extended to THHE.

Meanwhile, MIDF, which helped THHE’s unit THHE Fabricators Sdn Bhd issue RM70 million worth of six-year debt papers in August 2013, has a charge over the company’s fabrication yard as a first fixed charge for the loan.

As at end-March this year, THHE’s liabilities included an unsecured revolving credit of RM68.75 million, unsecured bridging loan of RM60 million and sukuk of RM169.85 million under its short-term borrowings, which totalled RM324. 56 million. Long-term borrowings, meanwhile, totalled RM83.66 million, of which RM69.74 million was from debt paper.

In contrast, cash and cash equivalents amounted to only RM48 million as at end-March. Trade receivables stood at RM189.73 million.

For its first quarter ended March this year, THHE suffered a net loss of RM33.44 million from RM14.52 million in sales. 

Signs of dwindling revenues from the lack of new projects are becoming clearer. The company’s accumulated losses as at end-March amounted to RM95.69 million.

In the notes accompanying its financials, THHE says, “As at March 31, 2016, the group has an outstanding main fabrication order book of RM132.5 million and outstanding minor fabrication, crane manufacturing and repairs and supply of equipment order books of RM9.4 million … (and) is exploring various ways to raise funds required to complete the FPSO Layang conversion works and to monetise and unlock the value of the group’s assets to generate cash flows and improve its working capital.

“Moving forward, the group expects the fabrication business to remain challenging in view of the present competitive environment and capex cut as announced by oil majors. The group plans to expand into refurbishment and maintenance works and non-oil and gas related fabrication works which is expected to provide a more stable and recurring income to the group.”

To recap, cash-strapped THHE requires funds to refurbish its floating production storage and offloading (FPSO) vessel, Deep Producer 1, which is drydocked in Dubai.

THHE had acquired distressed asset Deep Producer 1 (formerly the 68,000dwt tanker MV Laurita) in July 2011, for about US$82.5 million — which was only 40% of the US$200 odd million the previous owners had spent building the vessel. Deep Producer 1 is an 80% unit of THHE, held under Floatech (L) Ltd.

While it was a good asset at a cheap price, the FPSO did not have a locked-in charter contract, and was not able to secure one for a long time, which resulted in THHE forking out as much as RM24 million per annum or RM2 million a month to maintain the FPSO between 2011 and 2014.

In the second quarter of 2014, THHE secured an engineering, procurement, construction, installation and commissioning (EPCIC) contract from JX Nippon Oil & Gas Exploration (Malaysia) Ltd for the bareboat lease of its FPSO for charter at the Layang oil and gas field in Block SK10, offshore Sarawak.

The bareboat charter contract was pegged at a value of US$372 million or RM1.2 billion then, with a 7½-year tenure, and extension options of up to 10 years to match the life of the gas field.

In April, THHE was informed that it would be excluded from participating in future Petroliam Nasional Bhd tenders for as long as two years as a result of “performance-related issues” at a procurement, construction and commissioning project offshore Sabah awarded by the state-controlled oil company.

There are also other issues arising from the FPSO financing brewing at THHE, which has not achieved financial close since the award of the EPCIC contract.

The Edge understands that THHE’s parent, LTH had injected about RM275 million via the subscription to Islamic irredeemable convertible preference shares issued in September last year. It is not clear if the funds have been spent or are intact in the company.

In September last year, LTH issued 1.19 billion renounceable rights issue of new Islamic ICPS of 25 sen par value at an issue price of 25 sen on the basis of 16 ICPS for every 15 shares held in THHE. The ICPS have a tenure of five years.

LTH subscribed for 99.75% of the 1.1 billion ICPS offered and raised RM275 million for THHE. This means the pilgrim fund will control 64.57% of THHE if the preference shares are converted.

The preference shares can be converted at any time within the five-year tenure and were issued after some of THHE’s key people had left the company. They were director Datuk Seri Mohamad Norza Zakaria, chairman Datuk Azizan Abd Rahman who left on Sept 1, 2015, and former CEO Datuk Nor Badli Munawir Mohamad Alias Lafti, who left abruptly at end-June last year.

While THHE has solved its issues with Soft Triangle Services Sdn Bhd, the winding-up petitions of Orwell Offshore Ltd, to which THHE owes US$7.61 million, and MIB ITALIANA S.P.A, which is owed US$1.27 million, are still standing.

Last Thursday, THHE ended trading at seven sen, giving it a market capitalisation of RM78.5 million. Its net asset value per share was 54 sen as at end-March.

In view of these issues, the question that arises is what is the company’s new direction and the management’s business strategy? 

 

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