A shadow of its former self
Profits of Seacera dwindle, debts pile up and major shareholders sell down stakes
SADDLED with massive debts and faced with shrinking revenue from its operations, Seacera Group Bhd today is a sad shadow of its past.
The group, from its humble beginnings with a small tile factory in 1988 was among the pioneer companies in the local ceramic industry.
It blossomed to become one of the country’s largest fully automated homogeneous tiles manufacturers, ahead of its listing in May 1999.
The company paid attractive dividends to its shareholders, later taking on ambitious expansions into other sectors including property, construction and building materials.
Over the years, it acquired landbanks and smaller companies in these sectors to quickly grow the businesses.
Then all of a sudden, its profits started to dwindle and debts began piling up.
Three months ago, Seacera saw three of its major shareholders forced, by banks and stockbroking firms, to sell down their stakes on the market.
Then last month, Seacera announced a massive 30% share placement, along with a capitalisation exercise to help settle part of its outstanding loans.
With the two exercises, the company hopes to settle some RM56mil in bank borrowings and other liabilities.
Observers, meanwhile, are not ruling out further fund raising in the near future, including a rights issue.
On Jan 16, Seacera said it had entered into 28 separate conditional debt settlement agreements, together with two of its subsidiaries, to repay about RM31.31mil to some of its creditors.
A check on the company’s most recent financial results, meanwhile, shows that the tile manufacturer’s long and short term borrowings totalled about RM48mil, with another RM81.6mil in trade and other payables owed as at Sept 30, 2018.
The group’s revenue has been on the decline since 2016, while in the recent nine months ended Sept 30, 2018 period, the group plunged into a loss after tax of RM25.01mil, which it attributed to frequent machinery breakdown and an impairment of inventories due to obsolete stocks.
“As a whole, the tiles industry faces a challenging business environment due to weakening demand resulting from an overall decline in performance of the property and construction industries while stiff competition in the tiles market has lead to Seacera achieving lower margins,” the company says in its reply to a query from Bursa Malaysia on its rationale for the capitalisation exercise.
Its share price, meanwhile, has had a roller-coaster year.
Over the past 12 months, the share price has hit a high of 80 sen, and touched a low of 16 sen - after the forced selling by its major shareholders.
According to sources, a number of parties are looking at stepping in to rescue the ailing company, but nothing firm has happened yet.
These parties, they say, are likely drawn to the company’s assets, particularly a piece of land measuring 501-acres in Semenyih.
As at end Sept 2018, Seacera’s net assets per share stood at RM1.83 an impressive figure for a counter that closed at only 27 sen on Friday, with the land making up a large chunk of the figure.
However, sources say this hidden gem may not be as accessible as it seems.
While Seacera has outlined and put in place these plans to put itself on the road to recovery, observers say it will be a long, bumpy road ahead.
“On the surface, it looks good. “The company has valuable land, and while debt is high, there are restructuring plans in place,” an observer says.
He notes, however, that there are several issues that need to be addressed first.
First, the debt restructuring plan will have to get the approval of the company’s shareholders.
The company will have to convince shareholders - who will see their shareholdings in the company diluted if the restructuring plan takes place- that the plan is in their best interests.
Once this hurdle is overcome, the company will be able to begin the process.
As for the prized land, there are hurdles there as well.
Seacera completed the acquisition of Duta Nilai Holdings Sdn Bhd - which owns the Semenyih land in August 2017 for a total of RM165.1mil.
Of the total, RM90mil was settled via the issuance of new shares, and there was to be a deferred cash payment of RM75.1mil.
Seacera is required to make its first deferred cash payment, amounting to RM28.54mil within two years of the completion of the acquisition - adding further to the burden on its finances.
Apart from this is the fact that the company that owns the land appears to have issued redeemable convertible preference shares (RCPS) to several parties.
“In order to access the land, Seacera will first have to pay the owners of the RCPS.
“Furthermore, any transaction relating to the land has to be approved by the RCPS owners,” the observer says.
“All this will take a long time to sort out - it is not a simple, straighforward process,” he adds.
Seacera, which has a market cap of RM113.6mil, is also operating in a tough industry.
The tiles industry is suffering the impact of a softening property market and decline in construction sectors, which has resulted in weak demand and stiff competition.
Its listed competitors include White Horse Bhd, which analysts have a “Sell” call on, based on overall subdued demand for tiles “as property developers focus on clearing inventory and less construction jobs are awarded”.
Looking forward, it looks as though it will be a long, winding road to recovery for Seacera.
The good thing is, it already has a plan in place to address its biggest problem – its crippling debt. The tilemaker will just have to take things step by step, starting with convincing its shareholders to accept its restructuring plan.