Linear directors may have a lot of explaining to do at tomorrow’s AGM

PETALING JAYA: The directors of Linear Corp Bhd may have a lot of explaining to do on the status of the company as they meet shareholders at its AGM tomorrow.

It is the 16th AGM and it will be held in Prai, Penang.

Established in 1981, Linear is a cooling systems company that has landed itself into a PN17 company, which means it is in default of loan repayments.

The company is also being investigated by Bursa Malaysia and the Securities Commission over its RM1.6bil King Dome project.

One may wonder what the King Dome project is all about as the mere announcement only helped to raise more questions. Last Friday, Linear Corp received a directive from Bursa Malaysia to immediately appoint a special auditor to investigate the company.

Linear said on Dec 29 last year that its wholly owned subsidiary LCI Global Sdn Bhd (LCI) accepted the RM1.6bil project which was awarded by Global Investment Group Inc (GIG) of Seychelles via a letter dated Dec 24.

Work on the project was to begin in 24 months from the date of approval of the development plan by the Manjung District Council and subsequently, the completion was expected in another 24 months. All these will take four years if all goes as planned.

The announcement said a formal contract had to be entered into within 180 days from the date of the letter of award, which means that by June 24 the contract should have been signed. But the contract is nowhere in sight.

To add salt to the wound, Alan Rajendram – the man who is supposed to get the contract signed – resigned as director from the company in May.

Incidentally, he is also former director of LFE Corp Bhd and was charged in court last week but claimed trial to nine charges of cheating and criminal breach of trust involving nine million shares amounting to RM23mil.

Rajendram and his partner Bryann Pillay bought into Linear in December 2006 with 19.96% stake. And this project, according to Pillay, was brought in by Rajendram.

Both Pillay and Rajendram said they had parted ways and the stake had since been sold to a third party but the share sale agreement was only due for completion in mid July. A deposit of RM1.8mil have been paid and should the deal not completed, Pillay said he would take ownership of the 19% block of shares.

Pillay still sits on the board of Linear and Rajendram earlier said he had passed the reins to the former.

What is more surprising is that without a firm agreement in hand, Linear via LCI had advanced RM36mil to GIG. That is giving away almost all of the company’s reserves that stood at RM37mil.

The auditors uncovered this and raised alarm bells. Bursa issued a directive calling Linear to convene an urgent board meeting to deliberate on the matter and steps to be taken to safeguard and recover the advance.

The company announced last week that it had managed to get a statutory declaration and Letter of Indemnity dated June 17, from Rajendram “who has endeavoured to deliver the project or indemnify the company in the event of losses.”

Simply put Rajendram has undertaken to deliver the King Dome project to Linear, to “indemnify” Linear in the event of any loss, including refund of the cash advanced and to take over the Letter of Award at cost from Linear in the event the company decides not to proceed further. All this needs to be done on or before Nov 30.

Can he do it?

That is something only he can answer. Even if he could, there will be other questions about the project. One is the funding – where are the funds going to come from?

The other is whether Manjung is the ideal place since Pillay said they were talking to other states such as Johor.

Clarity is also lacking in terms of what is GIG and how this project came about.

In the meantime, the share price has gone up and down. In Friday’s trading it closed one sen lower to 16 sen.

A team of three new directors has come onboard Linear on May 7. Yap Chee Keong and Saw Heng Soo are executive directors while Neoh Chee Kean is director.

A turnaround is in progress. Yap claimed in a recent report that he was “confident of cleaning up the mess in Linear.

He said the immediate task was fire fighting and ironing out the issues in Linear first – that is restructuring Linear’s bank debts and its debts with trade creditors.

With so much going on, who is really calling the shots at Linear since the stake is being divested?

Tomorrow’s AGM provides the minority shareholders the window to question the board and they should make good use of the opportunity.

It involves the construction and works for the design, construction, completion and commissioning of a 350,000RT district cooling plant in Manjung, Perak.

By B.K. SIDHU
bksidhu@thestar.com.my