AFTER bondholders rejected Perisai Petroleum Teknologi Bhd’s debt restructuring plan early this month, all eyes are now on cash-strapped TH Heavy Engineering Bhd (THHE). The oil and gas (O&G) fabricator, which has been hit by dwindling revenues since the fallout from the oil price crash, early this week sought to extend the maturity date of its debt papers by one year, from Sept 30, 2016 to Sept 29, 2017.
The debt papers in concern were a three-year sukuk murabahah of RM170mil issued in 2013 with a profit rate of 7% per year.
In a filing with Bursa Malaysia, the company said that its principal adviser for the sukuk, MIDF Amanah Investment Bank, had written to the Securities Commission on its behalf to update the regulator on the extension, as well as the status of compliance with the relevant requirements.
“Till today, it has not mentioned the status of this obligation, suggesting that it is likely to have defaulted on the bond but could be in informal talks to restructure its payments.
“It’s likely that the company is working something out with its bondholders,” says a banker.
THHE had enlisted MIDF to help in the sukuk issuance back in 2013. According to sources, the investment bank emerged as the sole subscriber then.
Proceeds from the RM170mil sukuk was partly used to finance improvement works at the Pulau Indah fabrication shipyard near Port Klang. Post-refurbishment, it has a capacity twice more than before at 20,000 tonnes. However, its utilisation is said to be down to only about 10%. It bought the 57-acre yard from Oilfab Sdn Bhd for RM83.8mil cash in March 2011. It is uncertain whether the institution subsequently sold down the papers to external parties.
Early this month, Perisai became a casualty of the O&G debt markets as it faced the redemption of its S$125mil (RM377mil) bond which had matured after noteholders voted to reject its restructuring plan.
The firm had failed to secure a waiver on the payments and other obligations during a meeting with bondholders in Singapore. It had sought for an extension to the bond’s maturity date to Feb 3, 2017 from Oct 3, 2016.
Subsequently, Perisai received an indicative financing offer from a financial institution to resolve the situation with bondholders. It triggered Practice Note (PN) 17 (PN17) criteria on Wed and told the market regulator that a regularisation plan to address the issue and a plan would be formulated.
Earlier to this, Singapore’s Swiber Holdings Ltd had also defaulted on a coupon payment for the second time on Sept 19 since applying for judicial management in July. Swiber has some S$354mil outstanding on three notes under a US$1bil multi-currency medium-term notes programme where several Malaysian banks are among its main creditors.
THHE, which is 30%-controlled by Lembaga Tabung Haji (LTH), has come under pressure lately over its cash flow issue in an industry starved for cash and jobs. The option of external financing is tough, with banks shying away from lending to these firms. As at June 30, 2016, THHE’s loss widened to RM40.29mil on an almost 67% drop in revenue of RM22.24mil as compared to the same period a year ago.
Its main fabrication order book stood at RM132.5mil, while minor fabrication, crane manufacturing and repairs and supply of equipment order books was at RM8.9mil.
Borrowings as at end June stood at RM401.72mil, out of which RM320.48mil is short-term debts. Cash, meanwhile, has dwindled to RM41.24mil down from RM77.6mil two quarters ago.
However, there is a “life-line” that could be coming soon in the form of a contract from the Malaysian Maritime Enforcement Agency (MMEA). Recall that in July, THHE received a non-binding letter of intent from MMEA to supply three offshore patrol vessels.
While no value was given, the contract is said to be in the region of RM700mil. THHE is said to be teaming up with Destini Bhd - a listed engineering company in the aviation, marine and O&G sectors.
According to sources, an agreement with MMEA could be signed as early as next week.
More interestingly, it is understood that the job to construct the three patrol vessels could be undertaken at THHE’s Pulau Indah shipyard that can accommodate the construction of vessels up to 80 meters in length. In comparison, Destini’s existing Port Klang yard only allows for the construction of vessels up to 50 meters in length, according to a recent UOB KayHian report.
Destini has plans to expand its shipbuilding business, while for THHE, it has been pinning its hopes on the contract to lift it out of its doldrums. Even so, the latter’s challenges are far from gone. There are concerns over the execution and delivery of the company’s floating production, storage and offloading (FPSO) Layang O&G field off Sarawak.
THHE has converted the Laurita, a partly-converted FPSO vessel that it bought in 2011 for US$82.5mil, into the Deep Producer 1 FPSO at an estimated cost of US$230mil (RM875mil).
The vessel was to be leased to JX Nippon Oil & Gas of Japan for deployment for the Layang field for an initial seven years with an additional 10 one-year extensions.
Based on reports, the contract was to bring in a steady stream of revenue for the company by the third quarter of 2016,
However, since July it has reportedly been served with 10 winding-up petitions, with claims amounting to over RM45mil, mostly in relation to work for the Layang FPSO project.
A large part of the company’s current borrowings is to part-finance the acquisition and conversion of the asset and some reckon that a white knight may have to be roped in to complete the Layang project.
Last September, LTH injected RM275mil into the company when it was the sole subscriber of its rights issue of preference shares.
Based on information in the company’s 2015 annual report, the proceeds have been utilised, where RM171mil went to capital expenditure, RM51.9mil for repaying debts and another RM51.5mil for working capital.
Since April, it has been excluded from participating in future Petronas Carigali Sdn Bhd tenders for two years because of “performance-related issues”.
More recently, it also parted ways with US’ McDermott International Inc after a three-year partnership. The company is seeking to diversify from the upstream sector of the oil (business) and is seeking strategic partnerships in the region to replenish its order book. Since September, it has had a new chief executive, Suhaimi Badrul Jamil, who is touted to be a turnaround specialist.
His first test would be engaging the company’s creditors to get a reprieve as he sets a new direction.
Shares of THHE closed unchanged at 18 sen yesterday. The stock has traded to a low of six sen and a high of 24 sen during the year.