Rocky road
06/10/2007 The Star By Tee Lin Say

Talam needs to settle several issues

TALAM Corp Bhd's road to recovery has just become a lot more rocky. And considering its status as a Practice Note 17 company, it would appear that at this point, its financial and operational woes have reached a high point.

The company's shares have also reacted to a slew of negative news in the recent week, the main one being in relation to an accounting misclassification. Unfortunately, investors tend to get spooked instantly at the mention of any accounting-related issues and that has largely been triggered by the accounting mishaps in relation to Transmile Group Bhd and Megan Media Holdings, among others.

As far as Talam is concerned however, the issue has more to do with the misclassification of its debtors.

Earlier in the week, the Securities Commission directed Talam to reissue its financial statements for 2006 and 2007 by Oct 31. The reissuance of its financial statements was mainly due to RM90mil that were classified as debtors.

We are the white knight in the sense that we are finishing off their stalled projects, says Tan
The Securities Commission has asked for the reclassification of that figure into property development costs, other liabilities and retained profits brought forward.

The SC says that the property developer had breached Regulation 4 of the Securities Industry (Compliance with Approved Accounting Standards) Regulation 1999.

“Such treatment was not in compliance with the Financial Reporting Standard (FRS) 101 on Presentation of Financial Statements, which required financial statements to present fairly the financial position, financial performance and cash flows of an enterprise,” says the regulator in a statement.

Talam is also required to announce to Bursa Malaysia in respect of the rectification of its 2006 and 2007 financial statements, together with the reasons and effects (financial or otherwise) of its actions.

Numerous attempts to contact the company drew no response.

An accountant explains to BizWeek that Talam could have classified its housing projects and building materials as debtors, when it actual fact they are considered cost considering the fact that Talam is a property developer.

“By recognising it as debtors, one assumes that this is working capital and that revenue may be generated. However, that's really not certain as it depends on whether the units (houses) can be sold and money collected. Also, has the property project been completed? These are uncertain elements,” he says, generally speaking.

As of press time, BizWeek understands that the company is seeking clarification from the SC.

No nod for plan

If investors recall, early in the week the Securities Commission announced that it had rejected Talam's debt restructuring plan, which the company had submitted in April this year.

Talam's restructuring scheme involves a capital and share premium account reduction, share subdivision and disposal of assets. It includes a restructuring of its debts, which includes the proposed issuance of RM286mil redeemable convertible preference shares, four classes of redeemable convertible secured loan stocks totalling RM397.34mil and up to RM150mil Islamic debt securities. The company had already disposed of almost RM200mil worth of assets.

As at Feb 28 2007, Talam has total borrowings amounting to approximately RM1.35bil, of which approximately RM1.036bil are in default.

The SC rejected the restructuring plan on a few grounds. Firstly, the regulator says that there would still be RM156mil in accumulated losses, based on financial forecast, post restructuring. The SC says that the proposals appear to benefit the creditors more than the minority shareholders of Talam as the latter would be undergoing a capital reduction exercise.

In addition, the regulator noted the uncertainty over the possible emergence of a new substantial shareholder, which would have an impact on the direction of Talam, moving forward as it is not known if Abrar Discounts Bhd would sell its 36.3% stake in Talam.

KT of IJM clarifies

Another factor which the SC raised in its rejection was whether IJM Corp Bhd was acting as a “white knight” to Talam's restructuring scheme given that IJM would not be a substantial shareholder pursuant to the restructuring scheme via its shareholding in Kumpulan Europlus Bhd.

When BizWeek contacted IJM Corp Bhd's chief executive officer and managing director Datuk Krishnan Tan on the “white knight” issue, he says that there is room for clarification.

“We are the white knight in the sense that we are finishing off their stalled projects. Most of their projects are in various stages of completion, some very advanced. By finishing off their jobs, we are in fact taking a reputation risk as the completed units may not meet the quality standards that we set for ourselves or buyers would expect from us.”

“Secondly, under the current circumstances, Talam is not able to get advertising permits for their new projects. Without advertising permits, how do you sell your products unless you sell off your land and, at this juncture, at distressed values. How are they going to survive?

“By having a joint venture with IJM, we are actually allowing the company to generate an income stream of its own and avoid any distress sales of land.”

In October 2006, IJM was appointed as the principal contractor by Talam, for the construction works in relation to six property development projects, namely Taman Puncak Jalil, Ukay Perdana, Kinrara Section 3, Lagoon Perdana, Putra Perdana and Bukit Beruntung, for a total contract sum of approximately RM700mil.

Boardroom changes

Earlier in the week, Talam also announced several changes to its board, which numbered six in its 2007 annual report.

In separate filings with Bursa, the company said chief executive officer Puan Sri Thong Nyok Choo and non-executive directors Sulaiman Hew Abdullah and Lai Moo Chan had resigned on Oct 1.

On the same day, it redesignated Datuk Ab Rauf Yusoh as executive director and appointed Chua Kim Lan executive director. Also appointed were three non-executive directors Datuk Kamaruddin Mat Desa, Lee Swee Seng and Loy Boon Chen.

The existing board members are executive chairman Tan Sri Chan Ah Chye, deputy vice-chairman Tengku Sulaiman Shah Al-Haj Ibni Al-Marhum Sultan Salahuddin Abdul Aziz Shah Al-Haj and non-executive director Tsen Keng Yam.

Talam posted a net profit of RM1.1mil for its second quarter ended July 31, 2007 from a net loss of RM4.7mil a year earlier, on the reversal of a RM10.6mil provision for liquidated ascertained damages of a particular project of its subsidiary.

Revenue was 13.9% higher at RM59.8mil mainly from higher progress billings resulting from the financial restructuring undertaken by the group. For the six-month period, net profit was RM2.2mil against a net loss of RM9.8mil a year ago on the back of RM82.7mil revenue.

Talam is engaged in the provision of management services, investment holding and property development. Talam together with its subsidiaries have a total land bank balance of approximately 2,526ha comprising a mixed portfolio of commercial, residential and industrial properties in Kuala Lumpur, Ampang, Sepang, Puchong, Bukit Jalil and Rawang. The gross development value (GDV) of Talam's projects amount to about RM14bil.