TH Heavy expects PN17 status to be lifted by early next year

Repayments to creditors will be funded by its JX Nippon contract novation and proceeds from the Islamic ICPS, says CEO


TH HEAVY Engineering Bhd (THHE) expects to have its Practice Note 17 (PN17) status lifted early next year as the struggling oil and gas (O&G) service provider works to erase a sizeable amount of debts from the books.

The offshore operator, which is 29.8%-owned by Lembaga Tabung Haji, was classified as PN17 in April last year after auditors expressed concerns over the company’s ability to generate adequate cash and settle its liabilities.

The company must send a regularisation plan to Bursa Malaysia Securities Bhd before Oct 26 this year, or risk being delisted.

Its CEO Suhaimi Badrul Jamil (picture) said the “crucial” component of the regularisation plan is the repayments to creditors, which will be funded by its JX Nippon Oil & Gas Exploration (M) Ltd contract novation and proceeds from the Islamic irredeemable convertible preference shares (ICPS) issued in 2015.

“Pursuant to the scheme of arrangements with the creditors, our amount owed will go down to as low as RM65 million (from over RM900 million),” he said after THHE’s AGM in Kuala Lumpur yesterday.

“We are now implementing the regularisation scheme and other components, such as capital reduction and share consolidation.”

The company’s total debt after the repayments would be higher if creditors had not agreed to take a whopping RM406.4 million haircut under the scheme.

At the end of 2017, THHE’s current liabilities exceeded its current assets by RM925.01 million. Total liabilities for the group was at RM1.04 billion as of its first quarter ended March 31 this year (1Q18).

The JX Nippon contract novation to Yinson Energy Sdn Bhd will result in RM374 million proceeds for the group, while the ICPS comprise 1.19 billion new shares at a 25 sen issue price over a five-year tenure from the date of issue.

In order to lift the PN17 status, THHE will need to secure a clean audit opinion for the year and register two consecutive quarters of profit.

Suhaimi said the company’s improving orderbook is one of the steps needed before completing the regularisation plan.

“We have diversified our earnings base into offshore patrol vessels (OPVs) and are looking for similar projects in the sector, as well as maintenance and repair works in the shipbuilding segment and opportunities overseas,” he said.

“Our client base will include our current contractor Malaysian Maritime Enforcement Agency (MMEA) and other agencies that require offshore vessels such as the marine police, navy and customs authorities.”

THHE is currently sitting on a RM738.9 million orderbook, namely the supply and delivery of three OPVs for the MMEA.

Early last year, THHE partnered Destini Bhd to create a joint-venture (JV) company — THHE Destini Sdn Bhd. The JV firm, which is 49%- owned by THHE, secured a RM738.9 million contract to supply, deliver, test and commission three OPVs for the MMEA.

Minister of Finance Inc’s Aroma Teraju Sdn Bhd holds 200 million shares and is the second-largest shareholder in Destini.

Based on Bloomberg data, Destini is Aroma Teraju’s only investment for reported listed companies.