Nam Cheong controlling shareholder to take up RM50m of rights shares

Singapore

THE controlling shareholder of Nam Cheong has pledged to subscribe in full his share of a proposed rights issue that will cost him some RM50 million (S$15.9 million).

The irrevocable undertaking from Malaysian tycoon Tiong Su Kouk, who owns about 46 per cent of Nam Cheong, is to provide support for the company's debt restructuring plan. The amount will be used to fund an option for noteholders to cash out their debt - albeit with a severe haircut - in the debt restructuring plan; any subscription from other shareholders will be used for the firm's operations.

This, and other details, were presented to Nam Cheong's bondholders in an informal meeting facilitated by the Securities Investors Association (Singapore) on Thursday evening.

Nam Cheong has defaulted on the payment of the principal sum of its S$90 million bonds due on Aug 28, the S$2.25 million coupon due on these bonds, as well as a S$5 million due on its S$200 million bonds maturing in 2019.

It has appointed PricewaterhouseCoopers Advisory Services to advise on restructuring options, and Drew & Napier and Skrine as legal advisers.

The company has total debt of US$424 million, comprising about US$250 million in bonds and the balance in bank loans. Of this amount, US$336 million is unsecured debt.

The Business Times understands that the banks involved are CIMB and DBS Bank in Singapore, and RHB, Hong Leong Bank, Ambank, OCBC Bank, Bank of China and Maybank in Malaysia; RHB faces the largest exposure to Nam Cheong's unsecured debt.

Having estimated that the company would have a value of only US$220 million in seven years, Nam Cheong is proposing for the difference of US$116 million - termed the non-sustainable portion of the unsecured debt - to be converted into two billion new shares, with 17 new shares for every US$1. Nam Cheong's shares last traded at two Singapore cents before its trading suspension.

The remaining sustainable portion, which makes up 65 per cent of total unsecured debt, will be repaid over seven years. This includes a moratorium on the principal amount for the first three years, and repayment of 10 per cent, 20 per cent, 30 per cent and 40 per cent in the fourth, fifth, sixth and seventh year respectively.

Interest will be fixed at 4 per cent a year, half of which will be paid in cash as and when due, and half of which will be paid in shares at the end of each year.

For noteholders and lenders who prefer not to wait so long, however, the group is providing two other options.

The first is for them to cash out their debt, albeit with a haircut of 80-95 per cent. Funds for this will come from the rights issue.

If there are funds left over after this, the company can choose to offer a "reverse dutch auction", in which those willing to take the biggest haircuts get repaid first.

The second option is to convert this portion of debt into new shares as well, at a higher ratio of 34 shares for every US$1.

"As more debts are converted to equity or paid off, it is more likely to increase equity's value in the long run," said the company in its presentation to bondholders. "And there is more likelihood in repayment of the remaining restructured debt over seven years."

In demonstrating his commitment, Mr Tiong will also not sell his existing shares for seven years, and rights issue shares for one year.

Along with other shareholders, he faces a 50 per cent dilution in his stake when the new shares are issued for the non-sustainable debt, and further dilution if noteholders and banks opt to convert the sustainable debt into shares as well.

Complicating matters, however, is the legal process by which the restructuring will take place. Nam Cheong Limited and its two Malaysian operating subsidiaries, Nam Cheong Dockyard Sdn Bhd and Nam Cheong International Ltd, will each need its scheme of arrangement approved; if any one isn't approved, the plan will not be able to proceed.

The company is targeting to have a creditors' meeting on Nov 24, and to have the court approve the scheme by Dec 15.