It is fighting an uphill battle to keep itself afloat. And time is fast running out for the ailing steelmaker.
In the 80s and 90s, Perwaja was grabbing the headlines with its ambitious and grand plans. Today (Feb 2017), without a rescue plan in place, many expect this could spell the end of efforts to salvage Perwaja.
Over the last two years (2015-2016), shareholders had been clinging to the hope that financial support would be forthcoming from the Chinese white knights. On numerous occasions, they were told by Perwaja’s management that there was “light at the end of tunnel”, yet nothing materialised.
The debt restructuring scheme was to address Perwaja’s Practice Note 17 status, triggered on Nov 26, 2013.
Pheng is also MD of Kinsteel Bhd which holds 28.39% of Perwaja.
However, a source close to the matter says the restructuring plan was thwarted in part by TNB and Petronas’s tough stance. It is learnt that the creditors turned down Perwaja’s proposals in a meeting with the Ministry of Finance, despite the ministry’s efforts to mediate in the restructuring talks.
As of June 30 2016, Perwaja owed about RM439 mil to TNB and Petronas for the supply of electricity and dry gas, respectively.
Because of their objections, Perwaja could not wait any longer for the cash injection.
The steelmaker has till March 30 2017 to submit a new regularisationplan to Bursa Malaysia, or apply for a fresh extension. The current extension was granted on Nov 14 2017.
Nevertheless, Pheng says Perwaja has a “Plan B” to put in action.
Pheng declined to comment if Perwaja would eventually be delisted from Bursa Malaysia should it fail to obtain an extension to submit a regularization plan. Time will tell if Pheng’s Plan B materialises, but shareholders are expected to continue enduring the pain of seeing their investment in the company flounder.
For Pheng, it is better for him to focus his energy to revive the fortunes of fellow steel maker Kinsteel Bhd, which has been badly affected by the beleaguered Perwaja. Kinsteel took control of the company about a decade ago when it bought a 51% stake.
Since 2006, Kinsteel has also invested heavily in the debt-laden Perwaja, and any changes made by the company for a new beginning will be much better without Perwaja in its fold.
Pheng had, in an earlier report, said the takeover of Perwaja has taken a financial toll on Kinsteel and he is willing to give up Perwaja for the right price and on the right conditions.
The clock is also ticking for Perwaja to convince the stock exchange and creditors to give it more time. However, some critics say it should not be given a stay of execution after various futile attempts in the past. Sceptics say Perwaja, in which the government has poured billions of ringgit over the years, has reached the end of the road and it can no longer be salvaged. Yet there are some who feel the company can still be rescued.
Whether the stock exchange grants another extension to Perwaja ultimately boils down to the feasibility of the new corporate proposal.
Factors to be considered include the potential benefits that can be generated if more resources are deployed to keep the firm alive. Though time is running out for Perwaja and to piece together a rescue scheme all over again, there is a slight chance that it might succeed in extending the lifeline.
The crux of the matter is what do the lenders and creditors want from Perwaja? Since they have rejected the earlier proposal, what are their demands?
Perhaps, the key question now is should Perwaja be granted more time or should the authorities let the beleaguered steelmaker finally bite the dust?
In the event the company fails to obtain an extension of time from the bourse, what are the other options left, if any? Right now the public would like to know what is the worst outcome should there be no other proposal and no extension is given.
Liquidation is the last resort to consider if the steelmaker fails to present a next course of action.
Then we have to look at the debt structure, whether there is a charge or any asset that can be divested to repay the debt. Then it leads to the question of who will be the buyer and at what price assets can be sold. If there are any assets Perwaja can monetise,
A charge is a security given to the lender for the loan secured.
As of Sept 30 2016, Perwaja had RM907.31 mil worth of assets with the bulk of them being property, plant and equipment. Meanwhile, total liabilities stand at RM2.86 bil, translating into a debt ratio of 3.15 times.
Perwaja incurred a net loss of RM387 mil for the financial year ended June 30, 2016, down fromRM688mil andRM1.21bil recorded in FY15 and FY14, respectively.
Alternatively, the possibility of a debt swap, whereby debt is exchanged for a predetermined amount of equity. The value of the swap is determined at market rates, but the management may offer a higher exchange value to entice debt holders to participate in the exercise.
Nevertheless, a debt swap is an unlikely scenario given that Perwaja has been served with three winding-up petitions by TNB. The power utility is demanding a total payment of RM131.52 mil. The hearing of the winding-up petitions was adjourned to Feb 16 and 17 2017.
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