Monday, July 5, 2010

HAISAN sets out to solve debt woes

It is working on a scheme to reorganise financial position

PETALING JAYA: Most companies tend to face cashflow problems at some stage of their business or while expanding but they often manage to ride out their financial woes. But when funds are insufficient to service loans from financial institutions – as in the case of Haisan Resources Bhd – it could pose a major problem for the company, especially if the situation persists.

Haisan, which is mainly involved in temperature-controlled logistics, bonded warehousing, industrial refrigeration engineering, hot dip galvanising and ice manufacturing, has been placed under PN17 not once, but twice.

The first PN17 was triggered after its external auditors expressed a “modified opinion” on the company’s audited financial statement for the financial year ended Dec 31, 2009.

Haisan slipped the second time into PN17 for not being able to meet the financial obligations to repay RM42.9mil within the next 12 months.

On June 9, Haisan triggered the second criterion under Paragraph 2.1(f) of PN17 as it was unable to provide solvency declaration to Bursa Malaysia.

Haisan told Bursa that the company and its wholly-owned subsidiaries had received three letters of demand for repayment of principal and interest in respect of facilities granted by CIMB Bank Bhd (RM200,000), Public Bank (RM470,000) Bhd and CapOne Bhd (RM42.21mil). The firm conceded it might be subject to legal suits from the financial institutions.

An analyst said Haisan did not have a major history of default payments with financial institutions.

“But perhaps the non-repayment to several banks at one go and the large sums involved, including discrepancy in its financial accounts, warranted further explanation,” he said, adding that the PN17 status was akin to a signal to alert the management and shareholders of impending danger.

Haisan replied that it defaulted because of insufficient funds to meet the principal amount owed and interest payment but was in the process of formulating a regularisation plan to regularise its financial condition.

Bursa has given Haisan 11 months to submit its regularisation plan to the relevant authorities for approval.

Haisan chief excutive officer Ong Chin Yet told StarBiz the company would like to reiterate that although it had defaulted on its banking obligations, the company was optimistic of resolving its financial position via a proposed debt restructuring that it would urgently pursue.

“We want to reassure our customers and suppliers that the default will not have any impact on the business and operational aspects of the company, as we have sufficient sustaining business and operating cashflow to address operational needs,” Ong said.

He said Haisan had embarked on a debt restructuring programme (DRP) to address the default with respect to the banking facilities and that the company’s operations were going on as usual.

“We want to stress that there are no debentures on any of our companies or assets and as such, we are not subject to any receivership actions by any banker,” he noted.

He said Haisan was now working closely with its scheme adviser, UHY D, to formulate a conclusive DRP to reorganise the financial condition of the company.

“We are currently undertaking two disposals to strengthen our financial position – the proposed disposal of our entire stake in Malaysian Mega Galvaniser Sdn Bhd for RM16mil cash and the signing of a letter of intent with Global Logistic Properties Investment Management (China) Co Ltd and its subsubsidiary, IGLO (Shanghai) Co Ltd for a proposed sale and leaseback of IGLO’s properties for 120 million yuan,” he said.

The survival of Haisan will depend a lot on the DRP and scheme adviser UHY to resolve its bank repayment.

A source close to the company said the immediate action for Haisan was to streamline its operations and pare down gearing.

“The banks don’t like risk. If Haisan can show its ability to reduce cost, stabilise operations and improve sales, the banks can offer better credit terms under special consideration. They want to see a business continuity plan working,” he said.

The source said other options included finding a white knight to assist the company in its bank borrowings (for a sizeable equity stake), or take it private.

In December, Malaysian Rating Corp Bhd voluntarily withdrew its rating on Haisan’s five-year redeemable bonds of RM30mil face value. The bonds were issued on Sept 18, 2009 .


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