PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 20 Jun 2019, 10:04 AM


Daya Materials Berhad - Precursor To Regularization Plan

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The Group announced a debt restructuring exercise last Friday, incidentally also a precursor to its PN17 regularization plan which will involve a proposed capital reduction exercise and a proposed rights issue of new shares with free detachable warrants amongst others. Under this present RM32.46m deal, 534m new shares will be issued at 2.5sen per share to Perfect Propel Sdn Bhd (PPSB) in place of RM13.35m in debt assumed, RM18.69m will be set-off against subscriptions from the proposed rights issue while RM0.42m will be satisfied in cash. With RM246.12m in total borrowings as at 30 September 2018, and in particular RM83.1m in redeemable convertible unsecured bonds already due, one can expect a significant ballooning of its share base when the full regularization plan is announced. The one significant encouragement remains that the company is profitable operationally. We are cautiously optimistic over Daya’s restructuring and turnaround efforts but reserve comments pending details of the full plan however. Our target price remains under review but with Neutral call maintained. Earnings estimates continue to have significant downside biases.

  • Part one of the debt restructuring exercise is related to the now-terminated RM270m contract awarded by Yuk Tung Construction to Daya CMT (a 51%- owned subsidiary), which was then subject of a separate collaboration agreement with a third party. Post-termination of the contract, the third party agreed to pay a principal sum of RM40m to Daya CMT, presumably for advances in lieu of works undertaken. A subsequent mutual settlement agreement signed in December 2016 saw the Group agreeing to assume RM24m (of the RM40M) owed by the third party to Daya CMT, with the former now directly indebted to the Group.
  • Part two of the debt restructuring exercise is a result of an RM18.6m loan undertaken from Perfect Propel Sdn Bhd (PPSB) in mid-2015 with an interest rate of 8.85% per annum to part-finance the acquisition of an offshore subsea construction vessel (Sime Daya 1). Total owed is now RM20.7m inclusive of interest. To note. PPSB is a 49%-shareholder of Daya CMT. PPSB’s most notable personality is Dato’ Low Keng Siong, an Executive Director in Bursa listed Thriven Global Berhad.
  • Part three of the debt restructuring exercise will see Daya CMT proposing to declare dividends amounting to RM24m (covering part one of the debt restructuring exercise), RM12.24m of which will be payable to the Group and RM11.76m payable to PPSB in proportion of their respective shareholdings in Daya CMT. The Group will then assume the RM11.76m owed to PPSB, thereby increasing total amounts owed to RM32.46m.

Source: PublicInvest Research - 22 Jan 2019

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