KUCHING: Former state assistant minister Datuk Bolhassan Di @ Ahmad Din, a substantial shareholder of Zecon Bhd, has continued to sell down his stake in the construction company.
Bolhassan has reduced his equity interest in Zecon by about 1.56 million shares to 9.94 million shares or 7.58 percent from 11.5 million shares or 8.78 percent as at Oct 16, 2018 (based on Zecon annual report) via several disposals in the open market in the past three months.
The latest disposal of 120,000 shares was on Jan 9, according to filing with Bursa Malaysia. On that day, Zecon shares closed at 21.5sen. Bolhassan, who was Zecon’s former non-independent non executive director, did not support a proposal by Zecon to take the company private via a proposed selective capital repayment (SCR) exercise about five years ago. He then owned 9.66 percent stake in Zecon.
To recall, Zecon major shareholders Dawla Capital Sdn Bhd and Datuk Zainal Abidin Ahmad, together with Tan Sri Hamid Bugo and Zainurin Ahmad, had in July 2013 proposed to take the company private via SCR. Zainal and Bugo were then the company’s managing director and chairman, respectively.
Under the proposed SCR, all entitled shareholders would receive a total cash payment of about RM35.8 million which represents a cash payment of 80sen for each ordinary share of par value RM1.
A media report had said Bolhassan’s high entry level into Zecon at around RM1.10 per share could be the reason for him to reject the proposed SCR.
Bolhassan emerged as a substantial shareholder in Zecon in 2010 with a 7.15 percent stake. He acquired another three million shares, raising his stake to 11.5 million shares in 2012.
Without the backing of Bolhassan,who was then described as the “king maker” who would determine whether the SCR succeeds or fails, Zecon withdrew the proposed SCR which was approved by the Securities Commission in June, 2014.
Zecon share price tumbled to a low of 15.5sen after the company announced on Nov 2, 2018 that it had defaulted in the payment of some RM104mil to syndicated lenders on financing facilities for the Petra Jaya Hospital project here.
The Public Works Department (JKR) terminated Zecon as the turnkey contractor for the 300-bed hospital project on Aug 2, 2018. Zecon was awarded the RM495mil project on April 26, 2013 with a project duration of 42 months.
According to Health Minister Dr Dzulkefly Ahmad, the hospital project, which was supposed to be completed on Nov 29, 2016,only achieved 34.54 percent progress in construction as of June 2018. As such, the federal cabinet agreed to terminate Zecon’s contract due to “unacceptable” work delays.
Zecon said it received a notice dated Sept 7, 2018 from the syndicated lenders of the hospital project, notifying that an event of default for payment of principal and interest of financing facilities had occurred to the tune of RM104,362,841.
The company’s subsidiary Zecon Capital Ventures Sdn Bhd, as a third party security party to the financing arrangement, had received a notice dated Sept 26, 2018 from the solicitors of the syndicated financiers, notifying that the company has defaulted in making payment for the outstanding sum.
Zecon Capital Ventures was given 30 days from date of receipt of the notice to pay up, failing which the solicitors would institute foreclosure proceedings of the land belonging to the former which was charged to the syndicated lenders.
As the Zecon subsidiary failed to meet the deadline, the solicitors had on Oct 29 served Zecon a writ of summons filed with the Kuching High Court.
Zecon had on Dec 11 filed a defence and counter claim related to the writ of summons served by the syndicated lenders through its solicitor Messrs Beriak Tham Advocates.
The court had fixed the case for mention on Jan 9 but the syndicated lenders have requested for extension of two weeks.
On Nov 13, Zecon received an originating summons related to the foreclosure of a piece of land described as Lot 14,Block 16,Salak land district. In response, Zecon submitted an affidavit in opposition on Dec 28, and the date of mention was fixed on Jan 9, 2019.
However, the syndicated lenders, through their solicitor, had requested the extension of three weeks from Jan 11, 2019. Zecon, which claimed that it was wrongly terminated for the hospital project, had said that as a result of the termination, a substantial amount of the company money was stuck in the project in terms of equipment supplied and delivered on site and work done but not paid although certified.
“Some RM55mil has been certified by the consultants and due for payment by JKR.”
Zecon said it had initiated an arbitration action against JKR for wrongful termination and claiming payment for work done, equipment supplied and delivered to site, costs, expenses and losses to the tune of RM155 million.
Zecon had said the default payment might give rise to an event of default by virtue of the cross default provision under the loan documents of the financing facilities undertaken by the group.
To address the issue of default in payment, Zecon had appointed Deloitte Corporate Solutions Sdn Bhd as its financial advisor to come up with appropriate measures.
According to Zecon, it is putting in place several fund raising exercises, including assets monetisation, to repay the sum due to the syndicated lenders.
In a separate filing recently, Zecon said its independent auditor Crowe Malaysia had included a statement of “material uncertainty related to going concern” in its report dated Oct 24 in respect of the company and group financial statements for financial year ended June 30, 2018 (FY2018).
As of FY2018, the group’s current liabilities had exceeded current assets by RM487,088,863 and the group had recorded a negative operating cash flow of RM255,815,095.
These factors indicate the existence of a material uncertainty, which, according to Crowe Malaysia, might cast significant doubt on the group’s ability to continue as a going concern.
During FY2018, it was pointed out that Zecon had defaulted payment of RM20mil, being the balance of the principal amount under the revolving credit facility due on Dec 28,2017, and defaulted in relation to the progressive build-up funds into the Sinking Fund account.
Zecon had said it was taking several measures to mitigate the “existence of material uncertainty on going concern”, and its obligations falling due within the next 12 months. – Alvin Tang
These measures include:
- The group is currently formulating and implementing a proposed repayment scheme (within three and six months) which includes private placement and issuance of irredeemable convertible preference shares. A consultant on this has been appointed:
- The group has engaged in several discussions with other financial institutions prior to the due date for repayment; and,
- As an alternative, the group is also looking at monetising its certain property assets within six months.
