Showing posts with label LCL. Show all posts
Showing posts with label LCL. Show all posts

Wednesday 16 December 2009

LCL at historic low, more bad news ahead?

LCL at historic low, more bad news ahead?

Tags: Affin Bank Bhd | Bank Islam Malaysia Bhd | CIMB Research | Dubai debacle | Historic low | LCL Corporation Bhd | LCL Furniture Sdn Bhd

Written by Joy Lee
Monday, 14 December 2009 11:26

KUALA LUMPUR: LCL Corp Bhd, which saw its share price drop to a historic low of 21 sen in intra-day trade last Friday on loan defaults, may get more bad news ahead as the Dubai debacle seems unlikely to abate any time soon.


LCL said it had been severely affected by the financial turmoil in Dubai and plunging property prices had resulted in delay and non-payment of its receivables. “Hence, LCL and its subsidiaries have been unable to meet its repayment obligations,” it said in a recent announcement.

The interior fit-out (IFO) company’s share price tumbled 10 sen or 31.25% to close at 22 sen last week, after wholly owned subsidiary LCL Furniture Sdn Bhd defaulted on loans worth RM72 million to two banks, Affin Bank Bhd and Bank Islam Malaysia Bhd.

The stock rose to a 52-week high of 95 sen on Aug 13, 2009.

Analysts were not surprised by the defaults given its high debt and slow collection problems in Dubai since the fourth quarter of last year. As at end-September 2009, its net debt totalled RM376 million and net gearing was 4.7 times.

CIMB Research expects the company to default on more loans in the coming months unless Dubai’s financial position turned around, which it said was a less likely scenario.

LCL had said the defaulted bank borrowings with Affin Bank and Bank Islam would have a consequence on the group’s other ongoing bank borrowings, which would also be declared in default under the cross default clause.

It cautioned that legal proceedings may be initiated by the lenders against LCL group of companies.

LCL’s borrowings are mainly short-term loans. CIMB Research said more than 75% or a total of RM293 million of the group’s loans as at end-December 2008 matured in less than a year.

“This is because almost all of the group’s borrowings are used for working capital. LCL’s interior fit-out business has close to six months funding for working capital.

“The group purchases raw materials like plywood and steel and undertakes the necessary fabrication, which takes three to four months to complete. LCL only gets to collect most of its outstanding receivables two to three months later assuming no delays in its collection.

“Clients have delayed payments to LCL for more than four to five months and this is having an adverse impact on its operational cash flows,” the research house said in a recent report.

News flow out of Dubai has not been positive and may remain that way for some time which may prove to be detrimental to LCL over the next few months.

“It is unfortunate that LCL has reached this stage. The company offered so much potential two to three years back but its operations and balance sheet were hit hard after working conditions in Dubai deteriorated rapidly in the aftermath of the 4Q08 property crash.

“The challenges are not just hitting LCL but also hitting hard on the main contractors in Dubai, including the Korean and Japanese contractors,” CIMB Research added.

It maintained its earnings forecasts and target price of 25 sen with an unchanged 75% discount to its 1.8 times target of price-to-book value for the CONSTRUCTION [] sector.

Meanwhile, LCL said the board was deliberating the group’s solvency status and would make the necessary announcement within the required time frame.


This article appeared in The Edge Financial Daily, December 14, 2009.


http://www.theedgemalaysia.com/business-news/155576-lcl-at-historic-low-more-bad-news-ahead.html

LCL Founder Loses Company After Dubai Debt Crisis

Debt and leverage are double-edged swords. You can make it big or you can be decimated. You will never be bankrupt if you are not in debt or excessively leveraged. Always be prepared for the unexpected downsides. Who would have thought that Dubai will be also mained in this financial crisis?




LCL Founder Loses Company After Dubai Debt Crisis (Update3)


By Barry Porter

Dec. 15 (Bloomberg) -- LCL Corp Bhd. Managing Director Low Chin Meng lost control of the Malaysian interior design company he founded after a debt crisis in the Gulf emirate of Dubai forced it to default on loans.

CIMB Islamic Bank Bhd. sold 16 million of Low’s LCL shares, representing his remaining 11.2 percent stake in the business, that were pledged as security against financing, Malaysian stock exchange filings show.

More than of 80 percent of Selangor-based LCL’s sales came from the United Arab Emirates last year compared to 46 percent in 2007, according to data compiled by Bloomberg, as Dubai built the world’s tallest tower and palm tree-shaped islands in a bid to lure international investors.

“When the company was growing at a fast rate it needed short-term capital to meet orders,” Nigel Foo, an analyst at CIMB Investment Bank Bhd., said in a telephone interview from Kuala Lumpur today. “To achieve this Low personally pledged his own shares.”

LCL said Dec. 10 it had been “severely” impacted by financial turmoil in Dubai and defaulted on 72 million ringgit ($21 million) of loans from Affin Bank Bhd. and Bank Islam Malaysia Bhd. because clients in the sheikhdom hadn’t paid bills. State-owned Dubai World roiled markets worldwide Dec. 1 when it said it was in talks with creditors to restructure $26 billion of debt built up during the emirate’s six-year real estate boom.

Bank Debts

LCL had 376 million ringgit of net debt as of Sept. 30, according to a Dec. 11 report by CIMB’s Foo. In addition to loans from CIMB the company borrowed from AMMB Holdings Bhd., Alliance Bank Malaysia Bhd., Bank Muamalat Malaysia Bhd., EON Capital Bhd., Public Bank Bhd., Standard Chartered Plc, Kuwait Finance House and Royal Bank of Scotland Group Plc, according to its Dec. 10 statement.

LCL jumped 8.7 percent today in Kuala Lumpur trading to close at 25 sen, giving the company a market value of 35.8 million ringgit. The stock has plunged 64.5 percent this year.

Low sold blocks of shares in the past three months, reducing his stake to 11.2 percent from 29 percent on Sept. 24, exchange filings show.

Calls to his mobile phone today weren’t answered today and officials at the company’s main office said he wasn’t there when Bloomberg called seeking comment.

Separately, the Malaysian stock exchange said today it reprimanded LCL for not submitting its annual audited accounts on time for the year ended Dec. 31 2008.

To contact the reporter responsible for this story: Barry Porter in Kuala Lumpur at bporter10@bloomberg.net

Last Updated: December 15, 2009 04:23 EST