Former high flyer Zelan Bhd, whose fortunes had plunged due to its overseas misadventures especially in the Middle East, is in an awkward position now as its 8.64% stake in IJM Corp Bhd is larger than its market capitalisation.
The IJM stake, comprising 115.268 million shares, is worth RM565.96 million based on last Friday’s closing price of RM4.91. It is 89.5% higher than Zelan’s market capitalisation of RM298.53 million, based on its paid-up of 563.26 million shares and the closing price of 53 sen.
Zelan has been battered following its project cost overruns and boardroom changes which saw the company sinking further into the red.
For the financial year ended March 31, 2010, Zelan’s net loss widened to RM254.26 million or 45.15 sen per share, compared with the loss of RM137.22 million a year earlier.
The company was badly hit by cost overruns for its projects in the Middle East, while lower contribution from its engineering and construction business saw revenue plunge 90% to RM51.82 million from RM517.7 million previously.
During the period, Zelan suffered contract losses amounting to RM199.4 million, including RM93.4 million in Saudi Arabia, RM12.2 million in the United Arab Emirates and RM93.8 million in Indonesia. It also had an impairment loss of RM44.4 million from goodwill for the engineering and construction division.
The boardroom changes also had the negative impact. It was in 2007 that saw the entry of tycoon Tan Sri Syed Mokhtar Al-Bukhary into the company.
MMC Corp Bhd subsidiary, Tronoh Mines Malaysia Bhd, bought a 100% stake in the then privately held Zelan (M) Sdn Bhd for RM140 million from Noble Gem Sdn Bhd, Eminent Gateway Sdn Bhd and Navazi Sdn Bhd.
Noble Gem, Eminent Gateway and Navazi were controlled by Chang Si Fock @ Chang See Fock, Tan Cheng Huat and Lam Kar Keong respectively.
Tronoh paid RM10 million cash and issue 65 million new shares at RM2 apiece for Zelan. Tronoh subsequently changed its name to Zelan, with MMC currently holding 39.25% in the company.
The downward spiral of Zelan began after a boardroom tussle saw its chief executive officer Chang disposing most of his shareholdings in the company which was held through his private vehicle, Noble Gem, in 2008.
Chang left the company in January 2009 when his contract expired and Raja Azmi Raja Nazuddin was appointed the new managing director in June 2009.
Zelan has a unique value proposition as a specialist design and build power plant contractor. It has always haboured the ambition to be a regional independent power plant player, and have aggressively venture into the Middle East, Indonesia and India for construction and power related projects.
Its projects in the Middle East include the Shuaibah III and Shuqaiq II independent water desalination and power plants in Saudi Arabia, Sidar Tower in Dubai, Meena Tower and Al-Reem Island in Abu Dhabi, the UAE.
Zelan also has a joint venture with PT Primanaya Djan International to build a US$560 million (RM1.82 billion) 2 x 315 megawatt coal-fired power plant in Rembang, central Java in Indonesia for PT Perusahaan Listrik Negara. Zelan holds a 70% stake in the venture and PT Primanaya the balance 30%.
Upcoming power projects in Malaysia, however, could see the revival of fortune in the company. MMC, Zelan’s largest shareholder, has stated its intention to expand the company’s coal powered independent power plant in Tanjung Bin, Johor.
While no firm decision has been made on the proposal to expand Tanjung Bin plant, Zelan probably would have a role to play in the multi-billion ringgit project that may give rise to opportunity for Zelan to turn around its losses, analysts said.
Zelan shares closed at 53 sen last Friday with 1.0 million shares traded. It has fallen 20% so far this year, while net asset per share stood at 83 sen as at March 31, 2010.
This article appeared in The Edge Financial Daily, June 28, 2010.
Written by Tony C H Goh
The Edge Malaysia
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