PETALING JAYA: The strain of cashflow problems has caused SAAG Consolidated (M) Bhd’s share price to go skidding over the last 12 months.
The stock is currently trading at 6.5 sen, a far cry from what it was some 4 years ago. It hit a 52-week low of 6 sen on Aug 26 this year.
In 2006, SAAG was first discovered as an up-and-coming gem among oil and gas services companies.
From its turnaround in 2003, the company had established a firm footing in the energy sector when it acquired an order book of over RM800mil after having acquired five companies.
Analysts began to perk up as the company’s earnings began to trickle in tangibly. The new business streams from its newly acquired companies boosted group revenue from RM44mil in financial year (FY) 2003 to RM270mil (FY06) and from a loss of RM5mil (FY03) to a net profit of RM12mil (FY06).
Its net earnings increased further to RM28.03mil in FY07 and RM30.55 in FY08. Things were going great.
But suddenly in 2009, things took a turn for the worse.
SAAG dipped into the red with losses of RM9.5mil. That was also the year its share price started skidding. From a high of 39 sen on May 13, 2009, the stock tumbled continously to hit 6.5 sen at present. It did not help that its directors and substantial shareholders were also exiting the stock.
Fast forward to 2010. The company has yet to recover, although it is back in the black on a six-month basis.
For its second quarter to June 30, 2010, revenue was down 26.55% to RM43.1mil. The company posted a loss of RM72,000 from a profit of RM256,000 previously. On a six month basis, the company was in the black with a net profit of RM2.19mil.
Based on its cashflow statement, the company is in negative territory with a deficit of RM21.28mil.
As of June 30, it has borrowings of RM514.7mil while its non-current borrowings stand at RM246.31mil.
As for bank borrowings denominated in foreign currency, it has some RM42.93mil in obligations. This would mean that the group has some total borrowings of RM803.94mil. This is twice its issued capital and reserves of RM389.02mil.
“Because of the economic crisis in 2009, our clients were affected. Hence, there was a collection problem. We had to discontinue some projects, where cashflow was not forthcoming. Our focus then was to conserve cash. We are now refocusing and looking at a turnaround in 2011,” said chief executive officer Anand Subramanian.
Both Anand and Loganathan Ramanujam, the group managing director, say they have not sold a single share in the market. Their stakes were simply diluted because related parties of the company were not allowed to take up the issuance of its exchangeable bonds of US$60mil.
Anand today owns 0.48% of SAAG while Loganathan owns 1.02%. Through their company Taipan Holdings Sdn Bhd, they both own an indirect stake of 2.45%.
Anand said the company was expected to turn around in 2011 led by the deployment of its workover rigs and the construction of more power plants in India through TPS Builders Ltd.
“We are targeting for our workover rigs, either Pacific or Saffron to be deployed by the fourth quarter of the year,” he said.
At present, SAAG has an order book of some RM800mil to last over the next 18 to 24 months.
Anand said the company’s cashflow position would improve by year-end, once it completed its rights issue exercise and its rigs were deployed. The margins from these rigs will be more than enough to alleviate its cashflow situation.
SAAG has proposed to raise gross proceeds of up to about RM416mil by undertaking a proposed rights issue, proposed exchangeable bonds and/or proposed irredemeable convertible preference shares (ICPS) issue.
The corporate exercise will enable the company to increase its shareholders’ funds and strengthen the capital base. It will also enable the company to repay borrowings and raise funds for its business expansion.
The proposals involve a renounceable two-call rights issue of up to 5.2 billion rights shares on the basis of five rights shares for every two SAAG shares. It comes with up to 1.04 billion warrants on the basis of one free warrant for every five rights shares subscribed.
Anand also highlighted that SAAG had successfully completed construction of its power plant in Cambodia two years ago. The power plants are today fully operational.
It is on this note that SAAG is confident of delivering its contract to provide engineering, procurement and construction (EPC) works for two power plants in Bangladesh valued at RM405.66mil.
This contract is currently ongoing. In 2009, it was selected as the EPC contractor by Garisan Etika for the design, supply, construction, installation, testing, commissioning and completion of a 36MW and a 68MW combined cycle power plants at the Adamjee Export Processing Zone.
Meanwhile, Anand said that its Indian subsidiary SAAG RR Infra Ltd were also looking to raise some RM50mil in the Indian market.
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