SILK expects to uplift PN17 status in two months

KUALA LUMPUR: Highway concessionaire SILK Holdings Bhd expects to uplift its status as a financially-troubled PN17 company in two months while its proposed acquisition of AQL Aman Sdn Bhd, which is involved in the oil and gas services business, is expected to be completed by the fourth quarter, according to executive chairman Datuk Muhammad Azlan Hashim.

The proposed acquisition, together with a rights issue and par value reduction, is part of the company’s regularisation scheme which was approved by shareholders yesterday at the company’s adjourned EGM that lasted some three hours.

Due to the delay in the transaction following the adjournment of the EGM from April 30 to yesterday, SILK’s financial year ended July 31, 2009 would not reflect AQL’s profit contribution, Azlan told a media briefing after the EGM yesterday.

StarBiz reported on July 16 that a shareholder feud was brewing between Azlan, who together with business partner Johan Zainuddin Dzulkifli hold a majority stake of 36.16% in SILK, and Cerah Sama Sdn Bhd, a substantial shareholder with a 14.16% stake.

Cerah Sama, Azlan said, was of the view that AQL was not a strategic fit for SILK and, as such, was not in favour of the proposed acquisition. The deal could not proceed as long as Cerah Sama director Ahmad Ishak Haron, who was a non-independent and non-executive director of SILK, declined to sign off on the director’s responsibility statement, which led to the adjournment of the EGM. (A deal cannot proceed even with shareholders’ approval if a director does not sign off on the responsibility statement.) On June 16, Ishak resigned from the board.

SILK is buying AQL for RM94mil, including assumption of RM6.5mil liabilities, to be satisfied via the issuance of 175 million consideration shares and RM43.7mil nominal value RCULS-B of RM1 each. AQL, via 70%-owned Jasa Merin Sdn Bhd, owns a fleet of 10 offshore service vessels and two more that are third-party owned.

SILK independent director Tai Keat Chai, who chaired yesterday’s meeting, said the proposed acquisition received a majority of 54% votes in favour of the deal. As Johan is also a substantial shareholder of AQL, he and Azlan abstained from voting.

Johan said the shipping company would take delivery of two anchor handling tug supply vessels next year, two in 2011 and another two in 2012, bringing the total AQL-owned ships to 16 by 2012.

He said the new vessels would be funded through borrowings and that the repayment of the loan principal and interest would be easily met by the charter contracts.

“They are self-funded. The gearing that comes with this acquisition is not a drag on the group,” he said, adding that the new vessels would be debt-free at the end of the eight-year loan period while their lifespan could last up to 20 to 25 years.

Azlan said AQL, which made a net profit of RM14mil for the year ended Dec 31, 2008 (FY08), was anticipated to do better this year on the back of expanding fleet size and, as such, would enhance SILK’s profitability and provide shareholders with earnings visibility.

The purchase price is based on the net price earnings of 10 times AQL’s maintainable after-tax profit of RM9.4mil for FY06 to FY11.Meanwhile, he pointed out that traffic volume on SILK’s highway was rising with more than 100,000 vehicles per day and that cost was tightly controlled.

“Losses on highway operations are contracting. We expect a turnaround in the next three to four years,” Johan said.

SILK owns Sistem Lingkaran Lebuhraya Kajang Sdn Bhd, which holds the concession to operate the Kajang traffic dispersal ring road in Selangor.

Azlan and Johan acquired the stake in SILK through Infra Bumitek Sdn Bhd for RM11.1mil cash or 17 sen per share in a deal that was concluded in June last year. The deal was financed “through advances”, Azlan said.

Much earlier last year, a plan was being mulled to list AQL or Jasa Merin but it was not pursued due to the unfavourable equity market conditions.

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