Friday June 17, 2011
Muhibbah stock plunges, major client in receivership
By EDY SARIF
PETALING JAYA: Shares of Muhibbah Engineering plunged 20% or 38 sen yesterday on news that Asia Petroleum Hub (APH), a big client that owes money, was in receivership.
The stock closed at RM1.52 with 74.35 million shares traded.
CIMB Research on its report yesterday said the receivership status for the APH project as reported by a foreign newspaper on Wednesday was a negative surprise.
“However, it should not be a major concern at this juncture as APH is likely to negotiate for more time to resolve the matter and rope in a new investor,” it said.
APH had been put under receivership mainly because it could not come up with other investors to help fund the development and repay its debt.
The news said APH had secured in 2006 a RM1.4bil three-year bridging loan but has been looking for RM2bil in additional funding following escalation of the project cost.
It has been placed under a receiver -Malaysian accounting firm BBDO-Binder.
“Receivership status typically involves a temporary transfer of control from the management to the appointed receiver.
“On the status of a potential new investor, we understand that APH is still in talks, probably with a new foreign party, which would pump in the funds needed to restart the projects.
“The indicative timeline is towards end-2011,” CIMB Research said.
As one of the contractors for APH, Muhibbah was awarded marine piling and jetty works worth RM820mil.
The research house said cost escalation in 2008 led to funding issues for APH and the stalling of payments to Muhibbah Engineering.
“The unpaid amount has accumulated to RM300mil, which does not include RM187mil worth of outstanding work as at end-2010.
“Muhibbah Enginering had not made any provisions for the project as the project is still deemed viable,” the research house said.
It added that the worst case scenario for Muhibbah was a write-down of the RM300mil due from APH, which would push Muhibbah Engineering into losses for FY11.
“However, we believe that in a scenario where the receiver takes over the management of APH, it may come up with a scheme to repay a large portion of the amount due to contractors.
“This would reduce the risk of a huge write-down,” it said.
While this latest development was a disappointment, the research house said it was not overly concerned as Muhibbah Engineering's fundamentals were still intact, backed by a buoyant construction and oil & gas sector.
CIMB Research continues to rate Muhibbah Engineering a “trading buy” and remains one of its top picks for the construction sector.