Nam Cheong Limited says its auditors have cast doubt on its ability to continue as a going concern, with the group facing “major liquidity hurdles”.
The company said its auditors, BDO LLP, included an “emphasis of matter with respect to the material uncertainty” related to going concern in their report on financial statements for the group for the financial year ended 31 December 2016.
BDO LLP said: “For the financial year ended 31 December 2016, the group experienced a significant decrease in revenue and incurred a net loss of approximately RM42,771,000 (US$9.6 million) due to deferment of the delivery of vessels that had been requested by several customers. The current downturn in the oil and gas industry may continue to add pressure to the group’s financial performance and its operating cashflow.
“As at 31 December 2016, the group’s loans and borrowings that were classified as current amounted to RM948,720,000 of which RM278,566,000 pertained to medium-term notes that are due for repayment on 28 August 2017. These amounts exceeded the group’s cash and cash equivalents of RM162,618,000 as at 31 December 2016.”
In an early March 2017 report, DBS Group said of Nam Cheong: “With no new orders since March 2015, negative operating cashflow of RM291 million for FY16, a continuing trend of order cancellations and a still-oversupplied offshore support vessel market, the outlook remains bleak for Nam Cheong.”
DBS said Nam Cheong has maturities of RM670 million of bank debt and three note maturities in FY17/18/19 of US$64/US$53/US$143 million that would present “major liquidity hurdles.” These must be financed with a combination of cash from deliveries (which could total RM500-600 million across FY17/18, assuming no further cancellations) and additional drawdowns of credit facilities (of ~RM800 million). “But there is risk to both these sources of cash,” said DBS, “as owners in general continue to push back delivery dates and undrawn credit facilities are subject to lenders’ risk tolerance.
“Shipbuilding activity remains slow; net losses of RM5.6 million were recorded in the fourth quarter of 2016. Core shipbuilding revenue was around RM40 million for the quarter – way below pre-crisis levels of circa RM200-500 million – and the orderbook is slowly being drawn down with no replenishment. The charter segment reported its sixth consecutive quarterly gross loss. Thus we expect net losses to persist for Nam Cheong as revenue is not sufficient to cover operating and finance costs.”