Transmile’s plan to ‘ring-fence’ its debts

Transmile Group Bhd, which was caught for overstating its earnings four years back, is still striving hard to meet its debt obligations, hinging its hope on the emergence of new investors to inject fresh capital.

Last Friday, the ailing air cargo carrier announced its proposed debt-restructuring schemes to first restructure the company’s debts, and later to seek new investors to pump in fresh funds to settle the long overdue repayments.

However, in the announcement to Bursa Malaysia, Transmile stressed that while the proposed restructuring exercise was to address its debt obligations, it was not “a proposed regularisation plan to regularise the group’s financial condition for Transmile’s continued listing on the Main Market of Bursa”.

To recap, Transmile’s shares have been suspended from trading since last Thursday as it failed to submit a regularisation plan to the stock exchange.

The company said it had appealed to Bursa against the exchange’s decision to delist its shares and it was seeking more time to work out a regularisation plan.

Under the latest proposed debt restructuring scheme, all the debts in its core unit Transmile Air Services Sdn Bhd (TAS) are to be transferred to a special purpose vehicle (SPV), which would be wholly owned by Transmile.

In addition, the proceeds of RM210.4 million from the disposal of MD-11F aircraft in January would also be injected into the SPV.

The divestment consideration would be retained in the SPV until the final outcome of a legal case concerning the medium-term notes (MTN) holders have the priority in repayment against the other financial lenders.

Transmile said upon completion of the debt restructuring, it would invite “new potential investors to be identified”. The proceeds from new investors would be ultimately applied towards the settlements of the debts, it added.

But cargo carrier disclosed that it had yet to identify any potential parties nor had it commenced discussion relating to the invitation of new investors to Transmile.

“The primary objective of the proposed restructuring scheme is to ‘ring-fence’ the debts of TAS and to preserve the value of TAS as a going concern moving forward for the purpose of inviting new potential investor(s) seeing that TAS is the main operating subsidiary of Transmile,” the announcement said.

Transmile’s board said it was “highly unlikely” that Transmile and TAS will be able to obtain any further extension of the restraining order when it expires on April 19 after the several extensions already granted by the High Court.

Furthermore, the company is facing the risk of being wound up by Malaysian Trustees Bhd (MTB), which represents the interest of five MTN holders who are collectively owed RM105 million. In April last year, MTB filed a petition to wind up Transmile after it failed to honour its obligations.

Transmile said the winding-up proceeding was expected to commence in the absence of a binding scheme or the withdrawal of the winding-up petition.

The proposed debt-restructuring scheme relates to two separate inter-conditional schemes of arrangements by Transmile and TAS.

The proposed TAS scheme is based on the outstanding amount RM680.3 million owed to Transmile, in the form of inter-company loans, and other financial leanders.

For Transmile’s proposed scheme, it is based on the outstanding sum of RM426.5 million.

As at Dec 31, 2010, its balance sheet showed that Transmile has debts totalling RM531.5 million and negative shareholder funds of RM147 million as a result of the ballooning accumulated losses of RM1.35 billion.

For FY10 ended Dec 31, the cargo carrier’s net loss narrowed to RM169.4 million or 62.66 sen per share from RM272.5 million or RM1 per share the year before. Revenue rose 37% to RM207 million from RM151.2 million in FY09. Transmile has been loss-making since FY05.

Transmile shares were last traded at seven sen after it plunged to the low of five sen. Some 141 million shares, more than half of its issued shares, were changing hands on the last five trading days before the trading suspension.

Back in 2006, very few except for those who had the insights of the accounts, would have foreseen the meltdown on Transmile’s share price that rocketed to a historical high of RM15.20.

The fifth landing rights that enables Transmile to carry cargoes from China and Hong Kong to the US was the attractive growth story that was being told to investors. Having the Kuok group as the major shareholder also made Transmile appealing to foreign fund managers.

Kuok group, via Trinity Coral Sdn Bhd, holds a 17.16% equity stake, being the single largest shareholder of Transmile, followed by Pos Malaysia Bhd, which owns 14.99%.

The stock was gap down after the accounting scandal was uncovered. Former transport minister Tun Dr Ling Liong Sik was then the chairman of the board. Ling was appointed to the board taking over the chairman’s post from the company’s co-founder Gan Boon Aun in April 2004. He stepped down in September 2007.

The Securities Commission had in July 2007 charged Gan who is also the former CEO, former chief financial officer Lo Chok Ping plus former executive director Khiudin Mohd with giving misleading financial statements.

It has been nearly four years since the regulator had charged the former executives. It is not known when will the three face the music, but Transmile shareholders have paid the hefty price for the wrong investment they made. - by Kathy Fong, theedgemalaysia.com