TH Heavy pressure

THHEs FPSO operations

PETALING JAYA: Loss-making TH Heavy Engineering Bhd (THHE), which was served with winding-up petitions from three parties for aggregate claims of RM38mil in the past week, may need to recapitalise its balance sheet if it is unable to resolve its cash flow woes.

Analysts said the offshore fabrication and marine services company, 30%-owned by Lembaga Tabung Haji (LTH), is in a situation where current cash flows are unable to service debt, while the option of external financing is tough.

“THHE’s current cash flows are unable to service debt. We believe that the company, which suffered a loss of RM33mil in the first quarter of financial year 2016 (1QFY16) in addition to losses of RM45mil in FY15 and RM76mil in FY14, will have difficulty in securing external financing for its working capital and ongoing projects unless it is able to recapitalise its balance sheet via an equity raising exercise,” AmInvestment Bank Research said in a report.

The research house added that in its view, the group’s net debt of RM361mil is unlikely to be serviced by its net cashflows, which registered a 1QFY16 earnings before interest, tax, depreciation and amortisation of only RM2mil..

This debt is equivalent to a net gearing of 0.6 times.

THHE is currently converting the Laurita, a partly-converted floating production, storage and offloading (FPSO) vessel, into the Deep Producer 1 FPSO which will then be leased to JX Nippon Oil & Gas of Japan for deployment at the Layang oil and gas field off Sarawak for an initial seven years with an additional 10 one-year extensions.

The fixed-term contract is worth US$372mil (RM1.5bil), but has a potential contract value of up to $457mil (RM1.8bil) if the options are exercised for the full 10 years.

It was reported that the company has officially started work on its Layang FPSO operations at its Pulau Indah yard, instead of constructing it in Dubai.

Recall that it had bought the Laurita in July 2011 for US$82.5mil and had to fork out RM24mil a year from that period till 2014 to maintain it as it was unable to secure a charter contract. It was only in May 2014 that the company won its first FPSO contract with Japan’s JX Nippon. It is estimated that the cost of the FPSO conversion is US$230mil (RM875mil).

A large part of the company’s current borrowings are to part-finance the acquisition and conversion of the asset.

Based on the latest quarter ended March 31, its cash stood at RM48mil, down from RM77.6mil in the previous quarter. Liabilities, meanwhile, stood at RM408.22mil.

The Layang FPSO project has been identified as one of the company’s transformation initiative to lift it out of its ailing fortunes due to the lack of jobs amid the slump in crude oil prices.

Last week, THHE was slapped with three winding-up petitions in relation to the supply of equipment and work done at the Layang FPSO project. However, it had said that it was seeking legal advice on the matters with a view of defeating the petitions, adding that the winding-up petitions would not have any additional financial or operational impact on the company other than the amounts claimed.

The company, which has been posting losses since the second quarter ended June 30, 2014, was also recently excluded from participating in Petronas Carigali Sdn Bhd’s tenders for two years.

Meanwhile, its order book, which stood at RM1.66bil as of September last year, is fast depleting.

The company has said it is seeking new contracts for fabrication work and jobs outside the embattled oil and gas (O&G) sector.

Noteworthy is that last September, LTH was the sole subscriber of THHE’s rights issue exercise that was 69.96% undersubscribed.

The pilgrim fund has injected RM275mil into the company, partly to be used for the group’s FPSO vessel.

Its other shareholder is Pelaburan Mara Bhd with 4.61%.

The stock, which is perhaps the biggest casualty of the O&G price rout, is now trading at a record low of 7 sen after shaving off 58.8% of its value year-to-date.

Its market capitalisation stood at a mere RM78.47mil compared to RM1.1bil in February 2014 when its share price was at RM1.03.

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