SINGAPORE Technologies Engineering (ST Engg) said on Tuesday it would record a S$61 million one-off charge for the third quarter ended Sept 30, 2016, as it proposes to halt production at a Chinese joint-venture project, citing concerns that the business will soon run out of cash.
The engineering group in the aerospace and electronic business said Jiangsu Huatong Kinetics and Jiangsu Huaran Kinetics - known collectively as JHK - had proposed on Tuesday to cease production to reduce its operating losses.
JHK is the joint venture between ST Kinetics and China's state-owned enterprise Jiangsu Huatong Machinery (JHM). JHK, of which ST Kinetics owns 75.3 per cent and JHM owns the balance 24.7 per cent, is in the road construction equipment business in China.
ST Engg said the cash at JHK "will soon run out", and that the decision comes after "months of engagement between the two shareholders to evaluate various courses of actions for JHK". The JHK board will have 15 days from Tuesday to decide.
As it is likely that production will cease at the end of the 15-day period, ST Kinetics will record a one-off charge of about S$61 million Q3 2016. This charge comprises an impairment of ST Kinetics' net carrying value in JHK, and closure costs including staff compensation. ST Engg said this writedown is a prudent approach.
ST Engg is holding its 2016 guidance for higher revenue and lower pre-tax profit compared to 2015.