Muhibbah - Are they telling the truth?

Today Muhibbah took a 1 hour trading halt to announce their position with regards to the receivership in the Asia Petroleum hub ("APH") case. The fact of the matter is that their stocks took such a beating that it forced them to announce the matter a day late rather than allowing a Singaporean press to announce it and let the market making presumption on the rumour.


The announcement in Bursa at 10.30 am today.

The Company is one of the contractors in respect of the Project known as Procurement, Construction and Commissioning of a Petroleum Hub and Bunkering Facility at the Reclaimed Island Off Tanjung Bin, Johor (APH Project). The receivables for certified work done and related costs amount to RM 370.8 million as at 31 Dec 2010.

With reference to the articles in the Singapore Business Times on 15 June 2011 regarding the appointment by CIMB (the financier of APH project) of receivers and managers for APH, the Company wishes to inform that according to APH, they have identified an investor, and are in negotiations with the investor to fully finance the completion of the APH Project, including making due payments to contractors.

As this is a oil and gas project with a secured business and the said investor due to finalise its financing transaction with APH, there are reasonable grounds to hold that the receivables are recoverable in due course.

Anything wrong with this announcement?

1. They are making assumption that they will recover fully under this receivership case within 24 hours after the project was in receivership. How do they know so soon I wonder or are they just assuming?;
2. I am questioning their project risk management handling. How can this construction company which is one of the more established in Malaysia, be allowing APH to owe them more than RM370 million? Where is the risk management especially when this issue was already in the news for more than 3 years;
3. One question I am asking is (high chance that they are a non-secured creditor), they are that confident they can fully recover the receivables - I say that the white knight if there is any, will not want them to take the haircut? As a potential new owner, I will even want CIMB (the bank that calls for the receivership) to take the haircut;
4. If there is a white knight, why take so long for the white knight to appear? - the white knight must be waiting for the receiver to take action first, then ask for haircut.

I say that there is a high chance that Muhibbah is forced to write off most of the receivables - and they are not going to do it soon - at the expense of shareholders again.