This article first appeared in Corporate, The Edge Malaysia Weekly, on May 30 - June 5, 2016.

MALAYSIA Pacific Corp Bhd (MPCorp) has a new substantial shareholder in lawyer Yee Wei Meng, who acquired 14.38 million shares in off-market transactions last week, increasing his equity interest to 5%.

According to filings with Bursa Malaysia on May 23, Yee had acquired the shares of the Practice Note 17 (PN17) company in three blocks on May 19 for 22.5 sen apiece or RM3.23 million. The sellers were MPCorp’s former CEO Datuk Bill Ch’ng Poh @ Ch’ng Chong Poh and his wife Datin Kong Yuk Chu, who is executive director and vice-chairman. They still hold a controlling stake of 51.36% in MPCorp via their private investment vehicles — Seacrest Land Ltd and Top Lander Offshore Inc.

It is worth noting that MPCorp has until July 29 to submit a regularisation plan to Bursa and exit from PN17 status. The company fell into that category in December 2014 after its external auditors Messrs BDO expressed a disclaimer opinion on its audited accounts for the financial year ended June 30, 2014 (FY2014), as it had not been able to obtain sufficient appropriate audit evidence on which to base an audit opinion.

Whether Yee is part of the exit plan remains to be seen. It is understood that during MPCorp’s annual general meeting on Dec 16 last year, some of the shareholders had already heard news of Yee’s emergence as a shareholder and his taking up as much as a 20% stake via a rights issue. However, the matter was not elaborated upon in the meeting.

Yee’s entry price seems cheap at 22.5 sen per share, considering that MPCorp’s net asset value per share as at end-March stood at 77 sen.

Market observers are asking what could have piqued Yee’s interest in loss-making MPCorp.

The Edge could not contact MPCorp’s CEO and executive director Charles Ch’ng Soon Sen to comment on the latest developments.

Yee’s links

To recap, Yee, 38, was appointed to the board on Nov 9, 2015, as an independent non-executive director of MPCorp. He was redesignated executive director in February this year, which indicates that he is going to play a more prominent role in the company.   

Of the 14.38 million shares that Yee acquired, 9.7 million are held indirectly — 5.2 million via Fontern Holdings (M) Sdn Bhd and 4.5 million via Transgrow Corp Sdn Bhd.

Interestingly, Yee holds a 10.75% stake in Superlon Holdings Bhd, a maker of insulation materials, via the two companies as well.

A check with the Companies Commission of Malaysia (SSM) shows that Fontern Holdings is controlled by Yee’s family —patriarch Yee Ying San controls 55% while Yee holds 30%. The remaining 15% is held by Yee Wei Hoong. All three are directors of the company together with one Yee Wei Siong.

Transgrow Corp, meanwhile, is wholly owned by Fontern Holdings.

According to Superlon’s annual report 2015, Yee has served on the board of the Fontern International group of companies, which is involved in all kinds of businesses, including steel and hardware trading, oil palm and rubber plantations, plantation development, property and share investment, business investment acquisition, property development and the hotel industry. Yee became the group managing director in 2004.

Fontern Holdings seems to be a sizeable company. As at end-December 2013, it posted a net profit of RM13.97 million on revenue of RM60 million. It had RM69.79 million in non-current assets and RM54.11 million in current assets. On the other side of the balance sheet, it had RM41.78 million in current liabilities and RM34.40 million in long-term debt commitments. The company also had RM32 million in reserves.

However other Fontern companies such as Fontern Properties Sdn Bhd and Fontern Capital Sdn Bhd, both of which have a core business of site hotel operations, are not performing well. Fontern Steel Sdn Bhd is dormant.

Another company wholly owned by Fontern Holdings is Sin Fuat Hardware (M) Sdn Bhd, which registered a net profit of RM2.05 million on revenue of RM35.64 million for the financial year ended December 2014. It had current assets of RM18.03 million, non-current assets of RM16.49 million, current liabilities of RM19.29 million and non-current liabilities of RM6.90 million. During the period under review, the company also had reserves of RM7.13 million.

It is not clear how well they have performed financially over the past two to three years.       

MPCorp’s predicaments  

MPCorp’s primary asset is Wisma MPL in Kuala Lumpur and a landbank of 630 acres in Plentong, Johor, which is near Iskandar Malaysia.

Despite the seemingly good assets, there are reasons why MPCorp’s market capitalisation was a mere RM54.66 million at its last closing price of 19 sen on May 23. According to MPCorp’s annual report 2015, Wisma MPL had a net carrying value of RM320 million as at October 2014, while the Johor land was valued at RM239.84 million as at July 2008.

Since November 2013, MPCorp has been trying to sell Wisma MPL — a four-decade-old, 19-storey office building —but it has not been successful, perhaps due to the low yields and the availability of many more attractive and newer alternatives.

Nevertheless, MPCorp is still keen to sell the two properties.

Apart from a brief recovery in the fourth quarter ended June 30, 2013 (4QFY2013), which saw a net profit of RM52.54 million, MPCorp had posted 11 straight quarterly losses. If not for revaluation gains, the losing streak would have been much longer.

The company is likely to end up in the red for the current financial year ending June 30, 2016 (FY2016). For the cumulative nine months ended March 31, 2016, it suffered a net loss of RM11.91 million on revenue of RM7.26 million.

In a nutshell, MPCorp’s prospects look bleak. As at end-March, it had cash and bank balances of RM810,000, short-term borrowings of RM38 million, trade payables of RM212.51 million and long-term debt commitments of RM436,000. It had negative reserves of RM66.34 million. The company’s finance costs for the nine months to end-March was RM6.67 million.

MPCorp’s main debts are with AmanahRaya Development Sdn Bhd and RHB Bank Bhd.

AmanahRaya acquired 22% of MPCorp’s wholly owned LakeHill Resort Development Sdn Bhd for RM99 million cash, pegged with a fixed financial return of 12% for three years. AmanahRaya had a put option on LakeHill for RM99 million plus a 12% premium.

AmanahRaya exercised the put option on March 23, 2012, and sought RM110.9 million, which became due the following May. In September, MPCorp was served with a writ of summons by AmanahRaya and the High Court entered judgement against MPCorp for RM113.17 million with interest charges of 7.2%. 

After much legal wrangling, the land is to be auctioned off at the end of this month, amid a softening property market.

MPCorp had pledged Wisma MPL to RHB Bank Bhd for RM80 million and defaulted on the repayment of principal sums and interest in March 2013. It is looking to settle RM108.96 million owed to RHB Bank as at end June 2015. Discussions are still ongoing and case management is scheduled for next month.

The company is also mired in a slew of legal suits filed by parties including Wisma MPL’s joint management body.

Thus begs the question, why has MPCorp caught Yee’s fancy?

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