Tags: Affin Bank Bhd | Bank Islam Malaysia Bhd | CIMB Research | Dubai debacle | Historic low | LCL Corporation Bhd | LCL Furniture Sdn Bhd
Written by Joy Lee
Monday, 14 December 2009 11:26
KUALA LUMPUR: LCL Corp Bhd, which saw its share price drop to a historic low of 21 sen in intra-day trade last Friday on loan defaults, may get more bad news ahead as the Dubai debacle seems unlikely to abate any time soon.
LCL said it had been severely affected by the financial turmoil in Dubai and plunging property prices had resulted in delay and non-payment of its receivables. “Hence, LCL and its subsidiaries have been unable to meet its repayment obligations,” it said in a recent announcement.
The interior fit-out (IFO) company’s share price tumbled 10 sen or 31.25% to close at 22 sen last week, after wholly owned subsidiary LCL Furniture Sdn Bhd defaulted on loans worth RM72 million to two banks, Affin Bank Bhd and Bank Islam Malaysia Bhd.
The stock rose to a 52-week high of 95 sen on Aug 13, 2009.
Analysts were not surprised by the defaults given its high debt and slow collection problems in Dubai since the fourth quarter of last year. As at end-September 2009, its net debt totalled RM376 million and net gearing was 4.7 times.
CIMB Research expects the company to default on more loans in the coming months unless Dubai’s financial position turned around, which it said was a less likely scenario.
LCL had said the defaulted bank borrowings with Affin Bank and Bank Islam would have a consequence on the group’s other ongoing bank borrowings, which would also be declared in default under the cross default clause.
It cautioned that legal proceedings may be initiated by the lenders against LCL group of companies.
LCL’s borrowings are mainly short-term loans. CIMB Research said more than 75% or a total of RM293 million of the group’s loans as at end-December 2008 matured in less than a year.
“This is because almost all of the group’s borrowings are used for working capital. LCL’s interior fit-out business has close to six months funding for working capital.
“The group purchases raw materials like plywood and steel and undertakes the necessary fabrication, which takes three to four months to complete. LCL only gets to collect most of its outstanding receivables two to three months later assuming no delays in its collection.
“Clients have delayed payments to LCL for more than four to five months and this is having an adverse impact on its operational cash flows,” the research house said in a recent report.
News flow out of Dubai has not been positive and may remain that way for some time which may prove to be detrimental to LCL over the next few months.
“It is unfortunate that LCL has reached this stage. The company offered so much potential two to three years back but its operations and balance sheet were hit hard after working conditions in Dubai deteriorated rapidly in the aftermath of the 4Q08 property crash.
“The challenges are not just hitting LCL but also hitting hard on the main contractors in Dubai, including the Korean and Japanese contractors,” CIMB Research added.
It maintained its earnings forecasts and target price of 25 sen with an unchanged 75% discount to its 1.8 times target of price-to-book value for the CONSTRUCTION [] sector.
Meanwhile, LCL said the board was deliberating the group’s solvency status and would make the necessary announcement within the required time frame.
This article appeared in The Edge Financial Daily, December 14, 2009.
http://www.theedgemalaysia.com/business-news/155576-lcl-at-historic-low-more-bad-news-ahead.html
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