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March 7, 2008 |
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PECD BERHAD: Triggers Practice Note 17 Criteria PECD Berhad announced that it was classified as an Affected Listed Issuer under Practice Note No. 17/2005 of the Listing Requirements of Bursa Malaysia Securities Berhad, since the company's deficit in its unaudited adjusted shareholders' equity on a consolidated basis is of MYR914.9 million as at December 31, 2007. * Review of Recent Performance For the current year-to-date, PECD Group recorded revenue and loss before tax of MYR376.2 million and MYR1.1 billion respectively, as compared to MYR1.4 billion and losses of MYR128.7 million respectively, in the corresponding preceding period. The poor performance for the year is mainly attributed to the combined effects of provisions on project claims and significantly lower revenue due to the completion of the Prince Court Hospital Project in November 2006, and the finalization of several hotel and residential projects in Dubai during the year. Furthermore, the Sudan Marine Terminal Project also experienced major delays and project variations, which resulted in losses for the Group. PECD, in its quest for growth had ventured into foreign markets. This led to the aggressive bidding activities in these foreign markets, namely Sudan and Dubai, which in turn culminated in fixed price contracts on the projects. Due to the nature of the fixed-price contracts, invariably and inevitably, PECD as contractors had to absorb the brunt of inadvertent design, specification and project management oversights, as well as the usual and expected variation orders. The Group's position was further exacerbated by unanticipated escalations of raw material prices and difficult 'on-the-ground' conditions in Sudan and Dubai. Finally, the systemic weakening of the US dollar relative to the Ringgit, added to the Group's woes. In conclusion, the financial results are indicative of the major difficulties in operating in foreign markets In the meantime, PECD has submitted significant claims on cost overruns and variations based on PECD's understanding of its legal right and recourse in these jurisdictions. PECD is confident on its position with respect to these claims and its rights and recourses moving forward, despite the fact that the claims are being contested. Because of the protracted nature of negotiations in settling these claims, PECD has decided to adopt a prudent stance and make provisions for the claims of its projects. Nonetheless, these prudential provisions will in no way undermine PECD's confidence of its legal position and rights. The company will execute its best endeavors in realizing the project claims, and be fully committed to maximize a positive resolution to these claims. * Future Prospects With the Group's experience in Dubai and Sudan, it has taken an introspective review of its performance for the past 3 years, in particular, its performance in overseas projects. Therefore, PECD Group will re-focus its attention on the local market and re-establish its reputation as the preferred engineering and construction firm in Malaysia. PECD intends to leverage on the significant experience it has undertaken in the industry sub-sectors of the construction and engineering industries, which are: 1. Water and waste-water (Treatment plants, pipe laying etc.); 2. Energy-related fabrication and maintenance projects especially in the Oil and Gas sector and Electricity Generation sector; 3. Highway and toll-road construction; and 4. Other water infrastructure (specialized flood mitigation projects) Therefore, PECD Group will immediately consolidate on its strengths and rebuild its competency base and execution capability in the above sub-sectors, and be purely focused on Malaysia projects. This strategy is directly consistent with the Government's development plans on the identified development corridors of: Iskandar Development Region, Northern Corridor, Eastern Corridor, SCORE (Sarawak) and Sabah Development Corridor, with a combined potential development value of MYR834 billion over a 20-year period. The Group's aim is to actively participate in these future projects and have already begun focusing efforts to rebuild the Group's order book in this regard. Currently, the Group's order book stands at MYR123 million. This does not include an additional two new projects, which are expected to be confirmed and launched in the second quarter of 2008. The Group is also currently undertaking a major debt restructuring exercise to improve its financial position and to strengthen its capacity and footing to bid for new projects. The proposed financial restructuring plan is currently being developed and as soon as it is finalized, PECD will immediately notify creditors to initiate discussions. The Board of PECD is confident that the restructuring plan will be successful. In the meantime, the Group is continuing with its efforts to rationalize its own cost structure, improve cash flows and operational margins. The above prospects of PECD is charted by the new management team, Board members and the new substantial shareholder of the Group which assumed its shareholding in PECD, at the end of the first quarter of 2007. This existing largest shareholder of the Group is committed to the debt restructuring exercise and the future of the Group. Their unwavering support was exemplified by their injection of cash during PECD's recent rights issuance in November 2007, of MYR37.5 million and MYR30 million of advances in April/May 2007. The subscription of the rights issue also demonstrated other shareholders' support of the Group, manifesting in a cash injection of MYR66.7 million additional to the injection by the largest shareholder. Given the significant financial support already given, the substantial shareholder is determined to not only ensure a successful restructuring but also a robust pipeline of projects to secure the future of the Group. * Obligations of PECD Berhad as an Affected Listed Issuer In accordance with PN17, PECD is required to comply with these requirements: (a) submit a plan to the relevant authorities for approval, obtain all other approval necessary for the implementation of the Regularization Plan within eight months; (b) implement the Regularization Plan within the time frame stipulated by the relevant authorities; (c) announce the status of its Regularization Plan on a monthly basis until further notice from Bursa; and (d) announce its compliance or non-compliance with a particular obligation imposed pursuant to PN17 on an immediate basis. * Consequences of Non-Compliance In the event PECD fails to comply with the obligation to regularize its condition, all of its listed securities will be suspended from trading on the fifth market day after expiry of the Submission Timeframe or Implementation Timeframe, as the case may be, and de-listing procedures will commence against PECD. Currently, PECD's Board of Directors, together with the company's appointed specialist advisers, are currently deliberating on the possible plans to regularize PECD's condition and will announce the plan to Bursa upon finalization. About PECD Berhad PECD Berhad is engaged in investment holding and provision of management services. The company operates in four business segments: construction, EPCC oil and gas, property development and others. Its wholly owned subsidiaries include Peremba Construction Sdn. Bhd., which is engaged in general construction and investment holding and Wong Heng Engineering Sdn. Bhd., which is engaged in investment holding and engineering, procurement, construction and commissioning emphasizing in the oil and gas, as well as the power sectors. PECD Berhad's 70%- owned subsidiary is Peremba Jaya Holdings Sdn. Bhd., which is engaged in property development, construction and investment holding. Malaysian Rating Corp. Bhd has downgraded PECD Berhad's MYR200-million serial fixed rate bonds to BB+ from BBB-. The rating outlook remains negative. The downgrade reflects the major operational and strategic challenges currently faced by PECD as well as continued deterioration in its credit metrics, and recognizes the increased execution challenges confronting management as it pursues its turnaround strategy. |
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