Ryobi Kiso suspends trading after unit defaults on loan repayments

Singapore

GROUND engineering solutions firm Ryobi Kiso Holdings' subsidiary Ryobi Kiso (S) has defaulted on repayment obligations to "certain bank lenders" and is in breach of the corresponding banking facilities, the firm announced on Wednesday in a pre-market open exchange filing.

This comes amid challenging times for the construction sector, where companies are facing intense competition, shrinking margins and a tight labour market, market watchers say.

Ryobi Kiso has requested a voluntary suspension of its mainboard-listed shares and has appointed PricewaterhouseCoopers (PwC) as an independent financial adviser to assist in the matter.

PwC will help establish the group's current financial position and projections, and design a restructuring proposal in concert with bank lenders to enable the group to continue operations and tide over the current situation, Ryobi Kiso said in its filing.

The group warned that the default could "trigger cross default provisions in other banking facilities and project contracts of the group", adding that it was assessing the situation with its legal advisers and PwC.

In its latest fiscal third-quarter results for the period ended March 31, the group was hit by a lower value of work undertaken in the period and prolonged work phases of several projects (leading to higher operating costs incurred). This took it to a S$6.5 million loss attributable to equity holders from a profit of S$106,000 in the year-ago period.

The group's Q3 revenue was S$28 million, falling 29.5 per cent or S$11.7 million from S$39.7 million in the previous corresponding period.

Its current liabilities, excluding borrowings, stand at S$63.02 million, and it recorded cash and cash equivalents of S$13.51 million, down from S$21.98 million nine months ago.

The group had a S$168.9 million order book as at March 31, comprising public infrastructure, public housing, residential, commercial and geoservices projects.

It is "unlikely that there will be an improvement in the group's financial performance in the next reporting period", it cautioned in its earnings report; "keen competition, rising costs and the tight labour market" will continue to "add pressure to the group's performance".

Industry watchers say these issues are widely felt across the construction sector and could affect more companies' ability to repay debt.

But Nandakumar Ponniya, head of the construction practice at Baker McKenzie Wong & Leow, said that it would "too much of a sweeping statement" to say that the entire sector is at risk.

"Over the last few years, there has been a trickle of companies taking on construction work that have run into problems, not so much because they are in construction but because of issues in specific industry sectors such as power and oil and gas.

"Companies overextending themselves on limited resources, coupled with poor project management practices, results in higher risk of default," he added.

"Activity is likely to pick up for some companies on the back of the recent flurry in the en bloc market, as well as in the infrastructure space given the expected demand. It comes down to how specific companies and projects are managed."

Derek Loh, head of construction at TSMP Law Corporation, said recent uncertainties surrounding the high-speed rail project linking Kuala Lumpur and Singapore have exacerbated the industry's challenges.

"That said, there is still a decent amount of work and money to be made. What will separate companies that thrive from those that struggle is how well and prudently they manage their finances and operations," he added.

Ryobi Kiso's counter last traded on June 20, closing at S$0.13 apiece.