Yet, the company has not announced any new order for ship building. during pandemic, freight charges are at all time high, and shipping companies are ordering more vessel than ever.
All the loss making deals are now surfaced when the management has no more new project's invoices to refinance the debts. this is the sector that got the company into today's misery. So some might ask how about the company prospect? 1) construction is hopeless. So the further 50% drop in value if you dont buy the option is not yet accounted for. Dont you agree this is desperate or threatening? The sharp drop when this is announced is not panic sale bur rather adjustment to reality given above analysis. Dilution simply means loss of value, same as your shares drop to 30 cent from current 60 cent. without paying for their bad decision in business - loss making deals that now making 1 billion debt-, your shares will dilute by more than half. The logic is that they are issuing more than half of current outstanding shares. So now, the management asks the shareholders to chip in more than half of their investment in the company if not your share value will further drop to 30 cent (from 60 cent). Untranslatable one is all paper profit and subject to impairment, which is in the real term - business loss. Remember, only realisable receivable is true profit. This implies that 80% are overstated? that the debts are derived from loss making deals. On paper, assets are largely greater than liabilities, but in actual assessment, it's only 20% of reported. Why? because most of the accounting profits recognized as account receivables are questionable, which is unable to translate into real cash flow to settle the debts. In their latest financial report, asset per share is RM2.30, but why selling only 50 cent a share? There could be only one reason if the management is equipped with reasonable mind, that is no banks willing to finance the 1 billion ringgit debt due in 12 months anymore. 50 cent a share is not 31% discount from market value as advertised, but it is the true value after detailed scrutinization by RHB investment bank. This is a desperate measure of saving the company from going under. I believe no one should buy the right options. That raised the questions of management’s competency in converting paper profit into cash and plausibility of its revenue recognition, perhaps yet another accounting scandal to be unveiled. It is obvious when it needs to pay 40-50 million interest annually for years because of its heavy debt, but leaving the so called 400 million with SCA for decades for 0 interest. Moreover, Muhibbah being minority shareholder, even with 30%, in SCA is unable to exert influence on SCA’s dividend policy. SCA like any other airports in the World is suffering from pandemic and will face intense competition from new Chinese-owned Cambodian Airports, so it is unlikely for SCA to pay any dividend to shareholders in coming years. In this particular case that Muhibbah’s substantial investors, excluding management, such as KWSP and Tabung Haji have disposed their shareholding since May 2020, so it is unlikely to expect any other big investor to fill the gap, even if the management team members are willing to dilute their own shares by not pouring personal capital into a sinking ship. Anyone familiar with right issue or any other issue including bond knows that most, if not all, of issues are sold to big investors before they are offered to the public, perhaps left less than 10% of raised capital.
Anyway, when everyone in the management knows the company is going under, convincing them to go deeper with extra personal capital is simply impossible. Of course 3 times is an extreme measure assuming no other source of fund. "we opined that such rights exercise could potentially allude to the inability to collect receivables, which could lead to cash constraints and impairments and the inability to raise additional debt to bridge funding needs,” Kenanga Research said." How could a right issue resolves a 1 billion debt due in 12 months when its market cap is valued at only 380 million? Unless it raise 3 times of its market cap, then its own management, mac’s family and executives, whose own about 25% of total shareholding needs to come out with 280 million from their personal pockets to avoid their shares’ dilution.
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