Bid to sweeten Nam Cheong restructuring

Malaysian tycoon Tiong Su Kouk, Nam Cheong's executive chairman, has agreed to inject  RM50 million (S$16 million) into Nam Cheong  via a rights issue.
Malaysian tycoon Tiong Su Kouk, Nam Cheong's executive chairman, has agreed to inject RM50 million (S$16 million) into Nam Cheong via a rights issue.PHOTO: NAM CHEONG

Chairman hopes $16m token injection will persuade lenders to help stave off liquidation

The major shareholder of ailing shipbuilder Nam Cheong has agreed to pay RM50 million (S$16 million) in cash to pare some debts, in a final bid to persuade lenders to help the firm replace debt with equity and avoid liquidation.

Malaysian tycoon Tiong Su Kouk - Nam Cheong's executive chairman - has agreed to inject the sum into the group via a rights issue as part of a financial restructuring plan under a court-supervised scheme of arrangement.

Amid a lifeless market for offshore supply vessels, Nam Cheong has racked up US$424 million (S$571 million) in debts owed to banks and bond holders, according to latest figures released last night.

Of this, US$88 million is secured and can be paid with asset sales. That leaves US$336 million in unsecured debts, including S$365 million owed to individual bond holders.

Bank creditors include AmBank, Bank of China, CIMB, DBS, Hong Leong Bank, Maybank and RHB.

Of the US$336 million, Nam Cheong has determined that 35 per cent or US$116 million cannot be supported by continuing operations. It intends to swap this US$116 million for new Nam Cheong shares at a rate of US$1 for 17 new shares - a substantial haircut.

Amid a lifeless market for offshore supply vessels, Nam Cheong has racked up US$424 million (S$571 million) in debts owed to banks and bond holders, according to latest figures released last night.

The counter last traded at two cents. On conversion, the total share capital would double from two billion shares now to four billion.

For the remaining US$220 million, or 65 per cent of total unsecured debt, Nam Cheong is asking lenders to give it seven years to repay the amount in full.

Based on seven-year cash-flow projections, it has valued itself at US$220 million. Assumptions include US$140 million to be collected from the sale of 12 unencumbered vessels and US$234 million in gross charter income to be generated over seven years from a fleet of 11 vessels.

If the oil industry does not turn around soon, the charter projections might be optimistic. A rough calculation suggests a day rate of over $8,000 a vessel for a fleet of 11. Back in the boom days, a 5,000 brake horsepower (bhp) vessel might have commanded a rate of $8,000, or US$1.60/bhp. As of July, however, the average was closer to US$0.60/bhp.

Besides, shipbuilding is Nam Cheong's bread and butter. In the six months ended June 30, its smaller vessel-chartering business made RM27.3 million in revenue and a gross loss of RM260,000.

But recapitalisation would help the company buy time.

Lenders have a choice. If they do not want to wait seven years, they have two more options.

The first is to cash out immediately. Tan Sri Datuk Tiong's RM50 million would be split between those who pick this option. If all lenders in the US$220 million group pick this option, each would recover only five US cents per US$1 of debt.

The last option is to swap this portion of debt for new shares at a rate of US$1 for 34 shares.

Nam Cheong needs approval from a 75 per cent majority of lenders for the scheme to be approved, as well as the mandate of shareholders to issue new shares.

Voting is targeted to be done in November. Nam Cheong hopes to get the scheme approved and in effect by Dec 31.

A version of this article appeared in the print edition of The Straits Times on September 08, 2017, with the headline 'Bid to sweeten Nam Cheong restructuring'. Print Edition | Subscribe