Nylex (Malaysia) Berhad - Why is its parent company delaying repaying a RM10 mln loan?

21/4/2014 – Nylex Malaysia Bhd seem to be struggling to recover a RM10 mln loan from its parent company, Ancom Bhd.

It has granted a third extension to Ancom Bhd to repay the loan.

The new deadline is April 12 next year.

Ancom Bhd had borrowed RM 10 mln from Nylex Malaysia on April 10, 2012.

Ancom Bhd had promised to repay the entire loan amount on April 12 last year.

But on April 12 last year, at the request of Ancom Bhd, Nylex Malaysia granted an additional six months' time to repay the loan by October 12.

Again, just two days before the October 12 deadline, Nylex Malaysia granted another six months extension at the request of Ancom Bhd.

Six months since the second extension, the repayment deadline has been again extended for the third time.

This time for a year.

Nylex Malaysia says the extension agreement is not subject to approval of its shareholders.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Why does Ancom Bhd need another extension after already missing three deadlines to repay the loan?

It is strange that Nylex Malaysia has not disclosed the reasons for which its parent company, Ancom Bhd, couldn't repay the loan.

At the time of extending the loan in April 2012, Nylex Malaysia said that Ancom Bhd could only use the borrowed funds for its working capital requirements.

As Ancom Bhd failed to repay the loan a year later, one would assume that its financials might be weak.

But according to its FY13 annual report (page 51), Ancom Bhd had RM69.2 mln cash on May 31 last year.

Also, it had a net working capital of RM75.8 mln.

That shows Ancom Bhd could have comfortably repaid the loan on April 12 last year.

Moreover, according to its H1 FY14 earnings report (page 2), Ancom Bhd's cash reserves increased to RM77.2 mln on November 30.

And its net working capital increased to RM 122.4 mln.

Again, we can’t think of any reason why Ancom Bhd should have missed the extended deadlines on October 12 last year and April 12 this year.

We do not have Ancom Bhd's Q3 FY14 earnings report, which could help us verify if its financial condition worsened between November 30 and April 12.

Therefore that makes us wonder why Nylex Malaysia didn't insist on timely repayment of the loan, instead of extending the deadline to April 12 next year.

Question

2. Did it penalise Ancom Bhd for missing the repayment deadlines?

At the time of extending the loan to Ancom Bhd on April 12, 2012, Nylex Malaysia's Audit Committee said the terms of the loan were "fair" and "reasonable" and the interest rate and repayment terms were "comparable" to the those given by commercial banks.

The Committee, without disclosing the interest rate on the loan, also said that Nylex Malaysia was charging it at a rate higher than its cost of funds in Malaysia.

Looking at the repeated extension of repayment deadline, one wonders if a commercial bank would have been as generous as Nylex Malaysia has been towards Ancom Bhd.

If the terms of the loan are indeed comparable to those given by commercial banks, did Nylex Malaysia impose penalties on Ancom Bhd for repeated failure to repay the loan?

Total number of questions in the full story: 5)

We have sent these questions to the company (corp@nylex.com) to invite them for an on-camera interview, and/or seek their written response.

So far, we have not had a reply (which is why you are seeing this message).

While our purpose is to ask the questions which the man on the street would ask, and to help the everyday investor make informed investments, please note that:

Our articles and presentations ('our contents') are not investment advice nor should they be construed as investment advice or any recommendation of any kind; nor meant to cast allegations or insinuations of any kind against any individuals or entities. Before acting on the material in our contents, you should either seek independent advice tailored to your particular circumstances and intentions or rely on your own judgement.

Our articles and presentations express our observations, opinions and theoretical analysis based on the facts that we have gathered or have been provided to us. While we endeavour to ensure that our contents are accurate and are presented in good faith, we cannot and do not warrant the accuracy, adequacy or completeness of the material or that the material is suitable for its intended use; and we disclaim any such warranties express or implied that may be presumed by any party; neither do we take responsibility for the views of companies or other stakeholders or observers or sources quoted or hyperlinked in our contents. While every precaution has been taken in the preparation of our contents, we (and our principals) shall not be liable for any losses or damage or inconveniences due allegedly to errors or omissions in any facts or due allegedly to reliance on our contents in any way whatsoever; nor for any damage to any computer hardware, date information or materials allegedly caused by our contents.

All expressions of opinion and observations in our contents are subject to change without notice and we do not undertake a duty to update and supplement our contents or the information contained herein in the event we obtain any further or more complete information.

©2014 Investor Central® - a service of Hong Bao Media