PECD may have defaulted on bond after rating loweredMarch 10 2007
Construction company PECD Bhd (Peremba) may have defaulted on its RM200 million bond after its credit rating was downgraded by a rating agency yesterday.
However, the default would not happen if its bondholders allowed the company a reprieve. "The downward rating revision would constitute an event of default under the terms of the issue, in the absence of a waiver by bondholders," Malaysian Rating Corp Bhd (MARC) said in a statement. MARC did not say if PECD had got a waiver.
PECD officials could not be reached for comment. A default means that the bond would have to be repaid immediately. The bonds, had an initial rating of "A". They were issued in June 2005. MARC downgraded PECD's RM200 million bonds by a notch to "BBB" from "A-". This is due to the company's deteriorating credit profile. PECD made a net loss of RM130.3 million for the year to December 31, 2006. The loss was due to slower progress of ongoing projects, reversal of profits from certain completed projects due to cost overruns and non-recognition of profits from the Sudan Marine Terminal project, among others.
However, it is expected that its new shareholders in the company, UMNO, will help to restore stability to its financial position. On March 1, Datuk Dr Sheikh Awab Sheikh Abod, the current chief executive of Affin Investment Bank Bhd, and one Shakir Jamil Fisal bought 75 million shares, or 25 per cent, of PECD. The duo bought the shares from existing shareholders, namely Tan Sri Mohd Razali Abdul Rahman, Abu Bakar Mohd Nor and Datuk Hassan Abas. It is learned that the two were UMNO nominees.
4 comments:
For reader that have no idea what is the rating about :
The rating show a company ability to repay the bond and will decide how much is the interest. So when MARC give "A" rating to the new bond, this mean the company can issue the bond in lower interest rates, e.g. 4%, as compare to another bond, say with "B" rating, with high interest rates, e.g. 6%. Investor must take the risk if an bond is issue with "C" rating, although the company might delay the bond, but the interest rates is attractive, e.g. 8%-10%.
So when your bond being downgraded, it means you are taking higher risk but the bond interest fee are fix. So you don't sell the bond and the company able to make the payment, nothing change. But if you want to sell the bond to the open market, you will suffer losses in order to sell it, since other investor are more likely to get the same rating bond with higher interest rates.
PECD has a very bad reputation for its inability to complete projects within budget and meeting specifications.
It is still locked in contractual disputes with Putrajaya Holdings and Petronas on various project completion issues - its ironic, because these are government controlled companies who would normally be quite supportive with another government-linked firm.
Another sad, sorry tale of mismanagement. Yeah, I won't be surprised if it doesn't have enough cash to meet its bond repayment obligations.
Being a contractor with PEDC before has lots to share as we know why these projects fails big time. The Project Directors are all motivated differently / personally and not interested in the completion of jobs. This has kept us from bidding for more jobs after finding it is not viable anymore. Tan Sri Razali deserves better team than these group of stooges.
Umno can bail PDEC out but it they dont restructure with more reliable and trustworthy Management staffs. It will still be back to the dumps! Sad to see bumiputra outfit like this fails....................
I bought a property at Precinct 11 and signed the S&P 2 years back. But the project did not progress since then. According to the contract, they are liable to pay compensation. There are lots of bad news out there about peremba. Can someone give me some insight as to what is the likely outcome to this dispute? Are they goin to abandoned it? Thanks :)
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