IS PARK May Bhd walking in its parent's footsteps? Last year, Renong Bhd was in danger of falling into negative shareholders' funds and had to moot a private placement to raise RM400 million to help it out of that predicament.
Skidding along the same path now, is Park May.
As at end September 2002, the bus operator's shareholders' funds stood at only RM1.5 million. Should erosion of its shareholders' funds continue, Park May could soon find itself in a financially unenviable position.
Park May's fourth quarter results are due next month. But for past consecutive quarters, the company has made quarterly losses of between RM2 million to RM5 million and as at end September, was already showing a net tangible liability of 11 sen.
Reflecting its concern over the company's deteriorating financials, Rating Agency Malaysia Bhd (RAM) earlier this week downgraded Park May's 2002/2007 Commercial Paper/Medium-Term Notes programme. The rating agency downgraded the long- and short-term ratings on Park May's RM120 million debt papers from BBB3 and P3 to BB3 and NP (non-prime), effectively rendering the papers to non-investment grade quality.
Earlier in December, Park May's debt papers had been placed on Rating Watch with a negative outlook based on the group's poor performance. In line with the recent downgrade, RAM has lifted the Rating Watch.
RAM said that the downgrade was due to external factors at play believed to be beyond the control of Park May, but which had a substantial negative impact on its financial performance up to end September 2002.
“Despite consolidation plans for the industry, the relevant authorities continued to issue additional bus licences in 2002, which further intensified competition for Park May's stage and express buses,” said RAM in a press statement.
In November, two wholly-owned subsidiaries of Advance Synergy Capital Bhd – Triton Commuter Sdn Bhd and Triton Express Sdn Bhd - had been granted 530 commercial vehicles licences by Lembaga Perlesenan Kenderaan Perdagangan for the provision of express, intra-city and feeder bus services.
RAM noted that prior to this, the government had frozen the issuance of new bus licences for seven consecutive years, ever since consolidation plans were first tabled in 1994 for bus operators.
RAM said other developments affecting the company included the big drop in ridership numbers after the deportation of illegal foreign workers, which had constituted a sizeable percentage of the group's passengers.
But that was not the end of the bad news. RAM warned that it is likely Park May's financial profile will continue to deteriorate in the next financial year, making it difficult for the company to service its first repayment of RM22 million due in January 2004.
Just about the only silver lining the dark clouds now is the possibility that the government may intervene to ensure Park May continue to operate given the importance of bus transportation as a public service.
“(But) should this not materialise, there may be downward pressure on Park May's ratings,'' RAM warned.
In this respect, analysts agree the government may be Park May's best bet as its debt-laden parent Renong is in no position to assist.
As an analyst notes, “Park May is not a priority for Renong as Renong itself needs rescuing.”
In the short-term, Park May, like Renong, has to swiftly come up with a scheme to ward off being classified as a PN4 company. If not, the analyst thinks that the company is likely to sell what assets it can to raise funds, or alternatively slide into PN4 condition where it can then slowly work on restructuring itself.
Earlier in the year, Park May said that as part of its efforts to reduce its debts – estimated at RM110 million at the least – it was negotiating with a KLSE-listed IT company to dispose of its 20 per cent stake in Rangkaian Segar Sdn Bhd. It did not identify the IT company, but said talks had commenced in November last year and that the disposal should be completed by this year.
Rangkaian Segar, a 30 per cent-owned Renong associate which operates the Touch 'n Go electronic payment system, is currently in talks with the other toll road-concessionaires on the commission to be paid to the former once the different toll payment systems are consolidated into a single system as required by the government.
The government has yet to announce the commission rate to be paid by the other toll concessionaires to Rangkaian Segar for use of its system, but has said it will be lower than the 3.8 per cent suggested earlier. The proposed rate had caused a great deal of resentment among the other concessionaires who maintain the rate should be far lower.
There are currently an estimated one million active electronic purse cards in circulation at the moment. Assuming a conservative top-up of RM50, Rangkaian Segar would have RM50 million in advance payments – and that's not taking the commission rate income in consideration.
Rangkaian Segar, which has a paid-up capital of RM16 million, contributes less than RM1 million to Park May's bottom line, Park May chairman Tun Mohammed Hanif Omar had previously said.
An analyst agrees with Park May's decision to sell its stake in Rangkaian Segar. Not only is it not a core business for the company, but should negotiations over the rate to be paid continue to drag on, the value of Rangkaian Segar's stake may diminish over time, he says.
The disposal of the stake may help the company a little, but analysts don't think it will go far enough or reverse its operations.
“The bus business is very competitive. An earlier fare hike didn't help, while fuel prices may rise further,” says one. Another adds, “The company's top line is just not growing.”
Hanif had also recently mentioned to the media the possibility that Park May might venture into new businesses such as coach building.
The analysts say for, however, that will take time, and is a luxury Park May cannot afford.
Kumpulan Kenderaan Malaysia Bhd's (KKMB) decision in July to terminate a deal to take over the company via an injection of nine bus firms into Park May for RM128 million to be satisfied by the issue of shares, has also dealt Park May a major blow to the company to attract a new white knight, or persuade KKMB to return to negotiations, the going price for Park May will have to be much lower.
Listed in 1990, Park May has never been terribly profitable. Its best year was 1993 when it achieved RM14.6 million in net profit, but since 1997, it's been caught in pothole after pothole.
With the assistance of the Corporate Debt Restructuring Committee, Park May underwent a restructuring scheme that was finalised in 2000. The company completed a 1.25-into-1 capital reduction and a debt-to-equity conversion to address about RM163 million in loans.
But its ailing engine has stalled yet again.
A market observer says that Park May is still generating positive cash flow to service its interest payments, but adds whether the company gets a helping hand from the government will depend on the latter's transport policies.
Says the observer: “I can't see the government giving up on Park May since it's supposed to be a key player in the transport industry.”
So even as investors get off the bus – Park May shares were trading at 26.5 sen earlier in the week but improved on more bullish market sentiments to about 37.5 sen on Thursday – the company has to hope that the government remains on board.
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