Last try, Scomi. to rescue

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There appears to be one final attempt by Scomi Group Bhd shareholders to revive the ailing oil and gas company. But is it too little too late?

Scomi, which has been classified as a financially distressed Practice Note 17 (PN17) company since December 2019, has until September this year to submit a regularization plan. Last Thursday, however, disgruntled shareholders voted CEO Sammy Tse Kwok Fai and independent director Lionel Leo at an annual general meeting (AGM). Two other independent directors, Cheong Wong Sang and Chan Shiang Chiat, resigned on Wednesday and Thursday, respectively, and were absent from the shareholders’ meeting.

The only remaining directors at Scomi are Shah Hakim @ Shahzanim Zain, a non-independent non-executive director, and Tunku Azlan Tunku Aziz, an independent non-executive director.

One shareholder who attended the AGM said he was dissatisfied for a variety of reasons, but mostly because there was no regularization plan on the table.

“They (the board) keep saying that it (the operating environment) is difficult … Then maybe they (the management and the board) should leave it (Scomi) to someone else,” he says.

However, Tse is still CEO of Scomi and it is unclear whether he will leave his position.

Complaint against Tse

Resentment towards Tse has built among minority shareholders and was recently exacerbated when its privately held vehicle SBI Spectrum Sdn Bhd sold its 21.39% stake, or 233.99 million shares, to Scomi. SBI Spectrum is not a material shareholder in the company after 189.08 million shares, or 17.28%, were sold in the open market on March 17.

According to the stock exchange records, Tse sold the stake for 8.3 Sen each or a total of 15.69 million RM. It is unclear who acquired the shares. According to the records, he sold the remaining 4.11%, or 44.91 million shares, at Sen 6.11 each, or a total of RM 2.69 million.

Tse sold all of its stake in Scomi for 18.38 million RM.

He made a profit of 11.36 million RM on the sale, having acquired the 21.39% stake in construction giant IJM Corp Bhd at three sen per share or a total of 7.02 million RM at the end of June 2020.

To sum it up again: In mid-2012 IJM subscribed 119.11 million new shares or a 10% stake in Scomi for 39.3 million RM or 33 sen per share. It also subscribed to RM 110 million in repayable secured convertible bonds. The bonds were converted into new shares at Sen 36.5 apiece in January 2017 when Scomi shares were quoted at Sen 15. This increased the share of IJM from 7.66% to 24.4%.

When IJM converted Scomi’s debt, skeptics believed the construction company would be better off reducing its losses and moving on.

“Shareholders weren’t happy that it was sold out … It shows that he has no confidence in our company, so why should he be re-elected as an ED?” Asks the shareholder.

He also questions what Tse has been doing at Scomi in the past 2½ years.

Tse had sold its stake in Scomi during a surge in the company’s share price. The stock was trading at 3.5 Sen on March 15, but rose more than 214% to 11 Sen on March 16, before falling to 5.5 Sen the next day.

According to Scomi’s 2020 annual report, from July 1, 2019 to June 30, 2020, the company paid 1.74 million RM in salaries and bonuses, while the total payout to managing directors was 1.93 million RM. Checks on the Bursa Malaysia website show that Tse was the sole executive director during that time.

Tse was brought to Scomi by IJM at the end of July 2018. It was speculated at the time that he was the front man for Hong Kong-based business people looking to do some shopping at Scomi, but that purchase didn’t go through.

What is left of Scomi?

In the six months to December 2020, Scomi suffered a net loss of 10.96 million RM with no income. It has generated no revenue for the past four financial quarters and recorded a cumulative loss of RM469.02 million.

Scomi had RM112,000 in short term deposits, cash and bank balances. On the other side of the balance sheet were long-term liabilities of RM 255,000 and short-term loans of RM 133,000. The company’s financing costs in the six months to December 2020 were quite high at RM 8.16 million.

According to its 2020 annual report, the company had received a grant of RM 1 million from Tse and SBI Spectrum for working capital purposes at an annual rate of 8%. As security for the loan, shares in Scomi Energy Services Bhd – in which Scomi holds a 29.42% stake – with a value of up to RM 2 million were encumbered.

To Standard Chartered Private Equity Ltd. 9.76 million RM are also to be paid for the breach of a contractual obligation to pay a debt rescheduling at an interest rate of 12% per year, as well as 3.64 million RM to civil engineering, dredging and shipbuilding companies See Song & Sons Sdn Bhd for the purchase of tools and materials at an interest rate of 8% per year. It is unclear whether this debt was paid off.

In any case, resuscitating Scomi seems like a tedious task. The company once had a monorail business with presence in India and Brazil but has now been placed under receivership. The stake in Scomi Energy Services, which operates in the oil and gas sector, is also of little value as it is a losing company.

Scomi Energy Services closed at 11 am last Thursday for a market value of RM51.52 million. Scomi’s share is therefore only RM 15.16 million.

Scomi ended trading last Thursday at five sen, which corresponds to a market value of 54.7 million RM.


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