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Alleged UOB loan default won’t affect group’s viability: Hoe Leong
THE board of Hoe Leong Corporation on Friday said that the letter of demand received by its subsidiary, Arkstar Voyager, from United Overseas Bank (UOB) claiming repayment of about S$5.66 million will not affect the group's ability to carry on its business as a going concern.
The heavy equipment supplier had on Wednesday disclosed the letter of demand received by its wholly-owned unit. The amount represents the loan principal and accrued interest up to May 31, 2019.
In its response to queries from the Singapore Exchange on Friday, Hoe Leong said it had provided a corporate guarantee of up to S$9.1 million for Arkstar Voyager. The latter's vessel was pledged as collateral to the loan.
Hoe Leong said that under the terms and conditions of the scheme of arrangement, the net proceeds from the sale of the vessel will be used to settle the outstanding loans first and then if there is any shortfall, via cash or issuance of shares or a combination of both.
"Under a cash sweep mechanism, surplus funds from vessel operations above the reserve sum for operating expenses and contingencies would be used to pay down the outstanding loan owing to UOB. If the vessel was to be disposed off, there could be a reduction in group profitability, but no immediate impact to the net liquidity position."
But it added that UOB has not requested for the sale of the vessel or called the corporate guarantee.
"The management of Hoe Leong believes that the group is able to continue operations and generate positive operating cash flow," it said, adding that it will continue to hold discussions with UOB.
Hoe Leong is an associated company of UOB after the bank acquired a 28.66 per cent stake in Hoe Leong, following a scheme of arrangement that the firm undertook to restructure debt owed to bank creditors and its controlling shareholder.
On Friday, Hoe Leong also updated that the vessel is back on hire and is providing a positive contribution to the group's profits.
It added that the group's banking facility agreements contain standard cross-default clauses. The maximum exposure for the group is S$20.8 million as at May 31, 2019.
Hoe Leong said UOB's action does not affect its ability to carry on its business as a going concern. Rather, the group's viability depends on the continuing support of its financial and trade creditors, and the group's ability to generate adequate cash flows and repay its debt obligations when they fall due within the next 12 months.
Hoe Leong shares last traded at 0.3 Singapore cent on June 12.