Nam Cheong Ltd in Malaysia, which builds offshore support vessels, is ‘temporarily’ stopping repayment of borrowings and has started discussions lenders in order to restructure its banking facilities.
As previously reported, Nam Cheong Limited, which also charters offshore vessels, said its auditors had 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. In recent months the company said it was reviewing its options to restructure its businesses, operations and balance sheet.
“While the restructuring is ongoing, the company has decided to temporarily cease repayment on all of the company’s borrowings,” it said.
Nam Cheong confirmed it will not pay a coupon on one of its notes due on 23 July and has appointed PricewaterhouseCoopers Advisory Services to advise it.
Nam Cheong said its financial position has suffered as its business has been adversely impacted by an “extremely challenging operating environment” due to significant weakness and volatility in the oil price since 2014.
The company said oversupply of offshore support vessels along with an influx of newly-built vessels had led to an overall reduction in charter rates and utilisation.
In a presentation to an informal meeting of noteholders, the company said it had contracts for approximately 74 vessels at different stages of completion, mainly at Chinese yards to which it subcontracts work, that “may not be fulfilled,” and the deposits forfeited. The unbilled contract sum amounts to approximately US$770 million.
Describing the options available to the company and noteholders, Nam Cheong said the scheme it was proposing would offer significantly higher recovery than a liquidation scenario. The plan would see shares and convertible bonds issued, provide potential equity upside and an opportunity to exit immediately through cash out or immediate share conversion options. The “timing and amount of recovery under a liquidation scenario is highly uncertain given depressed OSV sector,” it concluded.