By Emmanuel Samarathisa
THE Malaysian Maritime Enforcement Agency (MMEA) may see delays in the delivery of its offshore patrol vessels (OPVs) but the contractor for the job is insisting otherwise.
THHE Destini Sdn Bhd, a 50:50 joint venture between listed companies Destini Bhd and TH Heavy Engineering Bhd (THHE), has been “renegotiating” the RM738.9 mil contract with MMEA due to “financing issues”, say people with knowledge of the matter.
But Destini, one half of the venture, has stressed that the company will be able to meet its deadlines. “THHE Destini Sdn Bhd is working closely with the government to deliver the OPVs as required by the contract,” a company spokesperson tells FocusM.
On Jan 19, 2017, THHE Destini received the letter of award to build three 83m OPVs for MMEA.
In a Bursa Malaysia filing that day, THHE said the job spanned 42 months or three and a half years upon receiving the award. The group also expected the project to “contribute positively” over the financial years ending Dec 31, 2017, through Dec 31, 2020. The first OPV is expected to be completed next month (February).
But, after receiving the award, concerns arose over the ability of the JV to deliver as its parent companies ran into financial headwinds.
Destini, while commanding experience in building vessels for MMEA in 2015, had to recently raise RM49.6 mil through a private placement, approved by shareholders in November last year. The money would go to paring bank borrowings and fund working capital requirements for existing and new projects.
Destini had posted thin earnings from a net profit of RM27.43 mil for FY17 to RM2.3 mil for FY18. The group’s cumulative profit, as of Sept 30, 2019, was RM1.8 mil while its cash and cash equivalents stood at RM15.16 mil, down 48.74% from RM29.58 mil for the same period in 2018.
THHE, however, has had it worse. The group was categorised as financially distressed after dropping into PN17 territory in April 2017.
Its independent auditors, Messrs Deloitte PLT, expressed a disclaimer of opinion on its accounts for the financial year ended Dec 31, 2016.
The group back then had insufficient resources to repay borrowings as current liabilities exceeded current assets by RM722 mil. Further, Deloitte also raised that THHE had not complied with some of the financial covenants under its loans.
THHE’s creditors, as part of the group’s turnaround plan, had to take a haircut from their loans while its fabrication contract with JX Nippon Oil and Gas Exploration (M) Ltd for a floating production, storage and offloading facility was novated to Yinson Holdings Bhd for RM374 mil. Also, THHE had to shift its core business from oil and gas fabrication to shipbuilding and repair.
For financial years 2016 and 2017, THHE posted net losses of RM18.53 mil and RM6.5 mil respectively. The group returned to the black with a net profit of RM479,000 for 2018 and its cumulative earnings as of Sept 30, 2019, stood at RM9.76 mil.