Full loan exposure to the beleaguered construction group, MTD Walkers PLC by all lenders, will be classified as non-performing, and provisions will also be made against the outstanding value of those loans, with immediate effect. In a rather unusual direction issued to all licensed banks this week, the Central Bank asked the lenders to make the necessary adjustments in the books since their finance and accounting department are busy readying their first quarter financials which will be out in a few weeks time. This is the first time the Central Bank has issued such instructions to lenders in relation to the exposure they have to a single customer. And the instructions could not have come at a worse time to banks as they are already grappling with the worst non-performing crisis in recent history that has been exacerbated by a moribund economy resulted in lackluster demand for loans.
The instructions also become atypical as it asked the banks to de-recognize all interest income hitherto recognized by the banks, even if not all facilities to the company are bad.
The largest lenders to the troubled construction and engineering group include Hatton National Bank PLC, People’s Bank and National Development Bank while there are also other small and medium-sized lenders who have had exposures to the company. According to the latest financial report available up to December 31, 2018, the company had been sitting on a Rs.26 billion debt pile, of which Rs.22billion were short term. The group further had Rs.8.5 billion worth supplier credit.
Last September, the company deferred settlement of Rs.2.0 billion debentures, and approximately Rs.1.1 billion was falling due again in September 2019 and the balance a year later. The MTD Walkers group’s troubles were largely blamed at the delayed payments by the government for the projects which the firm delivered.The group had Rs.18.0 billion receivables from projects and another Rs.1.0 billion each in cash and financial assets which are believed to be converted in to cash relatively easily.
However Central Bank Governor, Dr. Indrajith Coomaraswamy was reported to have said that the government released a whopping Rs.70 billion to private construction firms in March with another Rs.20 billion still in arrears.
The turn of events therefore remain baffled because questions are raised as to whether MTD Walkers group wasn’t settled during this round of treasury’s fund release.
In a latest twist, on April 1, the company said it could not make the interest payments of its debenture due by March 31, citing delays in collecting dues from government-related projects.
“Every effort was made to collect the anticipated revenue for the settlement of debenture interest. However, due to the slowdown in the fund flow from government projects, we are unable to make this payment on the stipulated date. “Therefore, we are expecting to make this payment on or before April 30, 2019 with the penal interest rate of 2.0 percent as per the trust deed,” said Group Financial Controller Rozan Jameel.
The group’s debt restructuring efforts this January by way of asset transfers to its Malaysian parent came in to an abrupt halt after eight local banks filed cases against the group, obtaining enjoining orders against the move until it settled their share of the dues.
On February 14 the Colombo Stock Exchange halted trading of MTD Walkers’ shares, pending clarification from the company about these troubling events.
The group’s debt serviceability is also weakening due to depleting revenue. The finance cost for the quarter was Rs.883.4 million, up from Rs.478.9 million a year ago.
The group revenues were slashed by a half to Rs. 2.2 billion in the December quarter from the same period a year ago, while the gross profit turned in to a loss of Rs.606 million compared to a profit of Rs.238 million a year ago. The biggest blow to group top-line was coming from its civil engineering business – the construction engineering vertical in which it has a special know-how. Its nine months revenue to December fell by Rs.1.7 billion to Rs.6.7 billion.
The group has interests in to heavy engineering, marine engineering, trading, power generation and real estate.
None of the business verticals in the group made a profit during the quarter and instead its real estate business which made Rs.149 million operating profit a year earlier turned in to a loss of Rs.12 million. Meanwhile, for the nine months ended in December, MTD Walkers made a net loss of Rs.3.18 billion from a net loss of Rs.2.03 billion during the same period a year before. MTD Capital Bhd, MTD Walkers’ Malaysian parent held 90.78 percent stake in the company by December end.