IT has been one of the busiest times for restructuring lawyers and financial advisers as more companies seek to reset their financial position over the past months.
As the Covid-19 pandemic persists, some companies have disposed some divisions of their businesses as they no longer appear profitable in the current market environment.
These companies are looking to optimise the deployment of the capital given the increasing pressure from shareholders.
Even some well-capitalised firms are also restructuring their businesses as they take advantage of the flush of liquidity in the market amid the low-interest rate environment.
Not only that, even healthy companies faced a liquidity crisis last year with the enormous amount of technological disruption from the ongoing pandemic.
It is seen that companies now appear to be altering their growth strategies by reducing costs and consolidating resources in view of the recent macro-economic environment.
As one debt restructuring specialist, Davin Fernandez, who is the director of Sage 3 Capital Sdn Bhd puts it: “We expect a rise in corporate restructuring this year, with most firms linked to tourism, construction and even property development to align their business portfolio due to the uncertainty in the market.”
To put it into perspective, managing director of Astramina Advisory Sdn Bhd, Wong Muh Rong, believes businesses are seeking to undertake capital optimisation through debt programmes and raise funds through rights issue exercises.
One such loss-making company that is raising funds through the rights issue of irredeemable convertible preference shares (ICPS), while undergoing an ambitious restructuring plan, is WZ Satu Bhd.
Its group chief executive officer Suhaimi Badrul Jamil, who was appointed in August last year, also dubbed as a turnaround specialist, says raising funds through a rights issue would improve the liquidity of the group in line with the restructuring plan.
“I am confident that we can raise between RM45mil and RM50mil at least with the better prospects of the group, ” he tells StarBizWeek.
Suhaimi explains that the funds raised would be utilised for the new contracts bagged by the group this year. Recently, the group won in joint venture with HRSB Holdings Sdn Bhd a RM243.4mil contract from Malaysian Refining Company Sdn Bhd for the provision of engineering, procurement, construction, and commissioning of effluent management at source project.
To-date, the group’s total order book is about RM800mil from both the oil and gas (O&G) as well as construction sectors.
WZ Satu is a diversified group, which has expanded its footprint in the O&G, civil engineering, mining, power generation, logistics and manufacturing sectors.
Following the rights issue exercise, Suhaimi expects the gearing ratio to drop below 0.7 times from the 0.89 times in December 2020. “We have not defaulted a single time. Of course, we will be able to service the debt on time, ” he says.
As of December last year, the group’s total debt stood at RM72.9mil. Notably, WZ Satu’s cash position had also improved to RM28mil as of Dec 31,2020 from RM15mil as of August last year.
Besides improving the liquidity of the group, Suhaimi says the group would also be exiting the bauxite mining business in Kuantan and disposing its non-productive assets worth around RM16mil.
The non-productive assets include transport vehicles, equipment and machinery worth around RM8mil.
“The mining business was attractive, but at the moment it is challenging due to the bauxite mining moratorium. There are a lot of regulatory procedures to fulfil as well, such as obtaining an approved permit (AP) to export every mineral which is not easy to get, ” he notes.
Among the key strategies implemented by Suhaimi is the sharing of the group’s services between the subsidiaries as it centralises all the services to be used more efficiently.
“For instance, our construction division has excess cranes that are not being utilised, while our O&G division requires those cranes. In the past, when we did not implement shared services, subsidiaries within the group were not communicating to each other.
“In that sense, now we have stopped these leakages, ” he explains. On a positive note, Suhaimi says most of the loss-making contracts are at their tail-end, with some of the ongoing contracts profitable. He is confident the group will return to the black before the first half of the year with the turnaround strategies implemented.
As the upcoming first quarter ended March 31,2021 (Q1) financial results will be announced next month, he hints that shareholders will be “pleasantly surprised” by the figures.
The group posted its first loss-making year since listing in the financial year ended Aug 31,2018 (FY18) with a net loss of RM84.19mil from a net profit of RM25.41mil in FY17, dragged by cost overruns in its O&G and civil engineering segments, as well as impairment in its mining business.
Looking forward, Suhaimi says the group is exploring opportunities with several proposals in hand for the upstream sector of the O&G division involving repair and maintenance, adding that it would provide a more sustainable income for the group.
In the long run, Suhaimi discloses that the group is focused on improving its bottomline and venturing into sectors which would provide sustainable income.
“Our future earnings growth will be led by O&G as well as the construction sector. The boys have never been so busy with the work in both these sectors, ” he says.