Stock Which You Should Avoid At All Costs – PSCI

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Mar 27 2007
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PSC Industries Bhd (PSCI) aims to return to the black for the year ending Dec 31, 2008, said executive deputy chairman Datuk Seri Ahmad Ramli Mohd Nor. PSCI recorded a net loss of RM93.7mil for 2006 versus RM533.5mil in 2005, while revenue fell to RM76.8mil from RM170.96mil previously.

“We are working hard to be profitable this year but a more conservative target would be next year. We expect shareholders’ funds to be positive and earnings per share to grow as well … We are positive about the new scenario and will leverage on our expertise in maritime, oil and gas, and commercial shipping to grow the business” Ramli said after the group secured shareholders’ approval for its restructuring scheme at the EGM yesterday.

The restructuring exercise involves the settlement of the group’s total borrowings of RM595mil, leaving the group relatively debt-free, via the issuance of new shares and the raising of RM69.6mil through a rights issue. It will reduce PSCI’s accumulated losses to RM172mil from RM771mil and improve shareholders’ funds to RM67.46mil from negative RM535mil previously.

On the multi-billion ringgit contract to supply 27 offshore patrol vessels to the Royal Malaysian Navy, Ramli said the group was on target to complete four vessels by 2009. “The Government has placed orders for six vessels so far. We delivered two last year and will launch the third and fourth vessel in the water this year,” he said.

Now, let’s look at the “achievement” of PSCI so far. During the period of previous premier, Mahathir, privatization was being pushed so aggressive that some of the deals were too costly compare to market price due to “insufficient” feasibility study or ministers being ill-advised. One of the recipients of this privatization is PSC Industries Bhd., a Malaysian company controlled by Amin Shah Omar Shah.

In 1998, PSC Industries Bhd (KLSE: PSCI, stock-code 8133) signed a RM 24 billion deal to build 27 patrol vessels for the Malaysian Navy. The 10-year contract also gave PSCI exclusive rights to service Malaysian navy’s entire fleet. This instantly gave Amin Shah top popularity image as one of the top government’s blue-boy as the deal was the country’s biggest deal. But as with most of the failed projects which places cronyism and nepotism on top of experience and capability in delivery, PSCI soon dived into deep financial difficulties.

After 7 years (2005) into the deal and despite government’s advancement of more than RM 2.5 billion to PSCI, it still couldn’t deliver even one complete ship which met the basic standard. The first two ships built by PSCI and its foreign partners, led by Germany’s ThyssenKrupp AG, have failed to even pass predelivery trials, caused by chronic computer-system glitches. The problems have forced the Malaysian Navy to temporarily shelve plans to purchase the next four patrol vessels scheduled for delivery from PSC. Some Malaysian officials question whether the country even needs the heavily armed, 90-meter-long patrol vessels it contracted to buy.

On the other hand, with overdue debts of more than 650 million ringgit in 2005, Amin Shah, who owns 29% of PSC, was locked in a legal dispute with his main Malaysian banker over the company’s failure to service its debt obligations.

Boustead Bhd, which is majority owned by Lembaga Tabung Angkatan Tentera, finally bailed out PSCI with the following dollars and cents, among others:

  • forking out about RM150 million to subscribe for PSCI’s creditor shares and a rights issue
  • RM162 million to secure 30% stake pledged to Credit Suisse First Boston
  • US$11.1 million it had to pay the legal advisers of an offshore company for successfully procuring the CSFB loan
  • paid Affin Bank RM150.1 million for a 27.7% stake pledged by PSCI’s 100%-owned subsidiary Penang Shipbuilding and Construction Sdn Bhd (PSCSB)

PSCI is a classic example of how privatization deals were negotiated privately in top secret without a competitive and open tender. The privatization program started by former premier Mahathir in his 22-years in power has spent billions in mega-infrastructures which often awarded to closely connected politically-link individuals.

So, what should you do with this stock? RUN away as fast as you can (even bare-foot) – don’t even touch or look at the stock price. It amuse me that the management dare to issue new share to solve their huge debts caused by nothing but pure-incompetency. Who would be stupid enough to subscribe to the right-issue? You’ll be surprise to see there’re still some novice investors who will invest their life-saving into these new shares, which in my opinion is worthless. The basic fundamentals of stocks investing criterias have been blogged earlier, so go and read the links provided below. Can you imagine the Malaysian government actually awards a company which doesn’t even have a website (the website says it’s under construction) with a RM 24 billion high-tech project?

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Just want to say that I have created a link to your blog and made reference to this post of yours.

Best wishes

thanx boon, will definitely explore your blog … cheers

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