Sierra Cables PLC last week reiterated on the plan it originally hatched to get two of its subsidiaries now in a quagmire back on their feet, as part of its revival efforts.
The directors at the largest cable manufacturer in Sri Lanka said they had approved new capital infusion into its East African subsidiary, which has been facing bankruptcy concerns, and the company had secured confirmed orders from the offshore jurisdiction which would give the firm the resources to remain in business.
Sierra Cables was transferred to the Watch List by the Colombo Stock Exchange after the company auditor raised doubts over the going concern of two of its subsidiaries.
KPMG, the company’s auditor in August 2018 raised serious doubts over the going concern of its Kenyan subsidiary, Sierra Cables East Africa Limited and its local subsidiary, Sierra Industries (Private) Limited, after two companies accumulated continuous losses running into many millions of rupees.
Making its maiden offshore investment, Sierra Cables set up its Kenyan subsidiary, Sierra Cables East Africa Limited in 2015, but ran into trouble over the volatile political situation in the African nation as the country had to go for back-to-back presidential polls in August and October 2017.
Although the company was able to secure sufficient orders from Rural Electrification Authority of Kenya to run the factory profitably at the beginning, the company was unable to operate at optimum capacity and recover the fixed overhead.
“This was primarily due to non-availability of sufficient funds to import required raw materials,” the company said in its annual report.
The company said the approval of respective authorities for the production facility of its Kenyan subsidiary was delayed beyond August 2017 and as a result the company was not in a position to secure orders from the Rural Electrification Authority in Kenya during the financial year ended March 31, 2018.
“Under those circumstances, the company last week said it “approved a further infusion of US$ 500,000 as share capital to Sierra Cables East Africa Limited to restore adequate capital and strengthen the company’s financial position.”
The company earlier said when the troubles escalated, it had injected US$ 500,000 but couldn’t verify with certainty if the company was commenting on the same capital infusion or a fresh one.
Repeating what the company said last September, Sierra Cables has also agreed to release part of its banking facilities to ensure uninterrupted production to cater to available orders and has also approved an import sub facility of US $ 300,000 to facilitate the importation of sufficient materials to support the production process.
The stock exchange filing said the company has a confirmed order book value to the tune of US $ 990,000 and remains confident of generating a turnover US$ 5 million in the next 12 months.
As the same statement contained in both disclosures—one which was released last September and in May this year— it appears that the company is talking about a fresh 12-month period from May.
In any event, the company has only 15 months since the Watch List transfer to avoid a suspension of the entity which will lapse in January 2020.
In the event a trading suspension continues in excess of 12 months, the company will run the risk of a delisting, as per the listing rules.
Meanwhile, the group’s other subsidiary, Sierra Industries (Private) Limited was awarded a contract for the Attangalle Water supply project, which according to the company will generate a revenue of US$ 5 million, and the project was expected to close prior to the financial year ended March 2019.
In order to meet the commitments and obligations under the supply contract, the holding company had provided a corporate guarantee of Rs.350 million to respective financial institutions.
Sierra Cables is a leading power cables supplier to residential, commercial and industrial sectors. The company is a key supplier to the State-owned Ceylon Electricity Board.
For the nine months ended December 2018, Sierra Cables group reported a net loss of Rs.122.8 million or a loss of 23 cents a share, expanding from a loss of Rs.25.5 million or 5 cents a share in the corresponding period a year ago.
However, the operating profit rose to Rs.126.8 million from Rs.106.3 million while the group revenues rose to Rs.3.2 billion from Rs.2.9 billion.
Sierra Cable’s share was trading at Rs.1.60 a share, a significant discount to the net asset value per share of Rs.3.16 as at December 31, 2018.