Corporate: Painful restructuring for Maxisegar?
www.theedgedaily.com.my 17/3/2006 By Siow Chen Ming

Developments last week involving Maxisegar Sdn Bhd — Talam Corp Bhd's wholly owned subsidiary — are poised to hasten a long overdue restructuring that could be painful for bondholders.
Last week, Maxisegar lost a suit involving a land deal and is liable for a claim of RM38.32 million. This was followed by a downgrade of its RM250 million Islamic bond issue on Thursday. The downgrade came about because the company failed to meet a RM30 million repayment on the bonds due last month.

While the default was expected, Maxisegar losing the case was not.

Sources say the company had not factored the losses from the suit and is now taking a hard look at how to resolve the problem.

It may have to make some difficult decisions. Sources say Talam's management may have no choice but to implement a painful restructuring for Maxisegar's bondholders as well as house buyers.
"Bondholders may end up taking a haircut and house buyers will probably be asked to forgo the LAD [late ascertained damages]," a source speculates.

The dismissal of the suit could be the final straw, especially when cash-strapped Talam is struggling to meet its obligations as well as mounting LAD for failure to deliver its projects on time.

Based on the announcement to the exchange last week, Talam foresees that the sum of RM38.32 million claimed by the party which brought the suit would have a material, financial and operational impact on the group.

"The company will take the necessary steps to arrive at a palatable solution," the company said.

Talam is in dire straits. As at Oct 31, 2005, the group was in a negative cash position of RM361,000 after deducting RM15.86 million in bank overdrafts and RM71.24 million of "short-term deposits restricted in use".

The problems at Talam surfaced early last year. Apart from the shortage of labour, there was a mismatch of cash flow that caused project delays.

The group's core development project, the 800-acre Taman Puncak Jalil township that is being undertaken by Maxisegar, was particularly affected. Puncak Jalil alone contributes about 40% of the group's total project billings.

The slowdown in work at Puncak Jalil had dampened Maxisegar's ability to meet its obligations under the RM250 million Al Bai Bithaman Ajil Islamic Debt Securities (BaIDS) issued in 2004. The papers are secured on the progress billings from the six phases of the Puncak Jalil project.

In January, the BaIDS were downgraded to "BBID" by the Malaysian Rating Corp Bhd (MARC), from "AID". Last week, the rating agency announced that the bond had gone into default.

On top of its bond woes, the suit has piled on the woes of Maxisegar and Talam.

Last week, the Federal Court dismissed an appeal by Maxisegar against an earlier court decision in favour of Silver Concept Sdn Bhd. The latter was awarded a sum of RM38.3 million for the disposal of land in Ulu Selangor to Maxisegar in 1997 — a deal that was not concluded.

Maxisegar failed to complete the purchase of the land from Silver Concept because it was unable to obtain the necessary financing at that time. Instead of acceding to Silver Concept's claims, Maxisegar had actually sued to recover a sum of RM42.07 million it had paid Silver Concept, being the 10% deposit and second instalment for the Ulu Selangor land.

Maxisegar instead now has to pay RM38.3 million and also write off a total sum of RM80.37 million (including the RM42.07 million paid to Silver Concept) from its books. Talam had not been making provisions for the amount, as it was confident of winning the case.

The latest development involving Talam is seen as a setback to negotiations between IJM Corp Bhd and Tan Sri Chan Ah Chye, Talam's ultimate controlling shareholder.

In May last year, IJM had entered into negotiations with Chan to acquire the latter's 25% stake in Talam's parent company Kumpulan Europlus Bhd (K-Euro). The deal has been extended several times, with the new deadline set for May.

While negotiations were ongoing, the expectations were for IJM to lend some immediate assistance to Talam in resuming or speeding up construction works at its property projects. This would enable Talam or Maxisegar to claim for the progress billings, which is crucial for the group to meet some debt obligations.

But given the extra financial burden that has come about following the dismissal of the suit, it would seem too much to expect from IJM. Considering the poor margins in Talam's development projects, not to mention the LAD, debt repayments as well as the claims from Silver Concept, how is Talam going to pay IJM as contractor for its development projects?

The liquidation of Maxisegar, if it ever comes to that, would lift some of the burden off Talam and help clear the way for the entry of IJM. But it will be a tough decision to make.