Linear, which manufactures cooling systems, recently updated Bursa Malaysia Securities with startling revelations on the status of its supposedly biggest project ever, the RM1.67 billion King Dome project in Manjung, Perak, for which it received a letter of award (LoA) from a Seychelles-based company — Global Investment Group Inc (GIG) late last year.
On Dec 29, 2009, Linear had announced it was awarded the contract by GIG to build a 350,000 refrigeration tonne per hour district cooling plant for the King Dome structure.
This was supposed to be the world’s largest dome structure measuring 1,600 metres in diameter, housing an indoor city with retail, leisure, resort, food and beverage facilities. Linear was to have signed the contract with GIG within 180 days from the date of the LoA dated Dec 24, 2009.
In the latest statement to the stock exchange on June 4, Linear said there was “no evidence of any significant progress towards the execution of the contract” and “no documentary evidence to demonstrate the overall viability of the King Dome Project”.
The company added that there was “no documentary evidence on the background and business experience of the promoters of GIG and on the financial standing of GIG” and that there was a “lack of full and proper documentation relating to the contractual relationships”.
This implies that the “project” may not proceed after Linear had paid a huge amount of RM36 million to GIG for a “performance consideration”.
The amount consists of almost all of Linear’s cash reserves of RM37 million as at March 31, 2010. The money was paid out to GIG in an “autocratic manner” after instructions from a director of Linear, the company said. It added that there was “absence of proper procedures and internal controls within Linear Group”.
Just about half a month before Linear disclosed these revelations, two of its non-executive directors resigned — Alan Rajendram Jeya Rajendram and Datuk Thangarajo A Subramaniam.
During his directorship at Linear, Alan Rajendram was also executive vice-chairman of the Stanton Group of Companies. Stanton Technology Sdn Bhd’s CEO is Mevin Nevis AF Nevis, who is also the executive director at Linear, and remains there today.
“I’m not in a position to talk about it,” Mevin Nevis said when contacted by The Edge Financial Daily yesterday to give more details about the purported King Dome project. He declined to comment and abruptly ended the telephone conversation.
In May 2010, the company reconstituted its board, appointing three new directors after the resignation of two directors.
After the King Dome award was announced, Linear’s share price shot up from 18.5 sen to a high of 83.5 sen in just two trading days on Dec 30 and Dec 31, 2009 on heavy volume.
Interestingly, Linear had announced the RM1.67 billion deal after the market closed on Dec 29, 2009, five days after supposedly receiving the LoA and near the end of the year, when overall trading volume on the stock market is typically low due to the holiday season.
The low-key stock was suddenly the third most actively traded stock on Dec 30, 2009 with 19.1 million shares traded. Another 24.7 million shares changed hands the next day.
Records showed that Linear was also the fourth most actively traded stock for the four-day trading week of Dec 28–Dec 31, 2009. Its shares have since been on a downward trend, closing near a six-month low at 23.5 sen yesterday.
The Edge had first drawn investor attention to this “unusual” billion-ringgit deal in the article titled “Puzzling deal for little-known Linear” in its January 11, 2010 issue. Apart from the lack of information about such a large project, The Edge highlighted that Linear was a small loss-making company and questioned its financial ability to handle such a large project, especially given its Practice Note 1 (PN1) status.
A company is classified as PN1 status when it has defaulted on its loan obligations. In late September last year, Linear was served a writ of summons by EON Bank Bhd for non-payment of interest amounting to RM133,000 on an overdraft facility taken by its wholly owned subsidiary LCI Global Sdn Bhd.
Then in December, Linear was served another writ of summons by RHB Bank Bhd for a RM2 million banking facility taken out by 70%-owned subsidiary BAC Cooling Technology Sdn Bhd.
“The board of directors has been in consultations and discussions with the four banks that have granted unsecured banking facilities to the Linear Group,” the company said on June 4.
It said “all of these facilities are in default” and that the amount outstanding as at May 31, 2010 was about RM37.5 million, including a secured term loan of RM16.7 million that was also in default.
The company, which has its headquarters in Prai, Penang and an office in Petaling Jaya, Selangor, was evasive in response to calls made by The Edge Financial Daily to both locations. “Who told you I was in charge of the King Dome project? I do not know what’s happening. You have to get to the top bosses on this matter,” said a staff.
It is learnt that both regulators, Bursa Malaysia Securities and the Securities Commission, are investigating Linear for a possible breach of its listing requirements and regulations. Things are certainly heating up at this small cooling systems company.
Written by Daniel Khoo
This article appeared in The Edge Financial Daily, June 17, 2010.
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