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Home > Articles > PN4s - What's Went Wrong?

PN4s - Autoways Holdings


Autoways Holdings (Autoways), set up on 21 Jan 1989, was a manufacturer of rubber compound & rubber products, tyre retreader and traded in rubber goods, chemical and other related products. Autoways was the second company to be listed on the KLSE Second Board on 6 Oct 1989 and the first tyre retreading company to be listed on the KLSE. A change of management in late 1993 led Autoways to diversify into the new activities of infrastructure, engineering & construction and property investment. Autoways aggressively secured many construction projects, totalling around RM860 mln by 1996. However, in 1997, Autoways fell into deep trouble when the turbulent economic conditions severely affected the construction industry, resulting in massive losses in its construction division. In addition, the group had to provide for claims from 2 stockbroking firms and a finance company in connection with share trading transactions purportedly taken by one of Autoways' subsidiary. As a result, Autoways made a massive loss of RM237.0 mln in 1997, which resulted in its shareholders' funds recording a deficit of RM171.1 mln. Autoways became a PN4 counter on 26 Feb 2001.

1990-1994: Focus, Focus, Focus

Table 1: Financial Highlights (RM mln)

Most of Autoways' products were sold locally, with the exception of its rubber manufacturing division where exports to Australia, United Kingdom and South Africa accounted for around 40% of total production. Autoways' exposure to foreign currency movements was minimal. Table 1 shows the key financial information of Autoways from 1990-1997.

The period 1990-1993 was under the guidance of the old management, who were with Autoways since the days of incorporation. Production capacity was increased and turnover was increasing steadily - evidence of the group's focus on its core operations even though pretax margins fell. In the early 1990s, the tyre replacement market was characterized by intense competition amongst tyre manufacturers and retreaders, due to the reduction in tariffs. This led to the imports of foreign brands and local brands being sold at more competitive prices, depressing profit margins. However, total borrowings, although rising due to working capital requirements and continuous investment, remained at low levels. Liberal credit was given to customers due to intense competition in the industry.

New Shareholder, New Management

Due to changes in one of the major shareholders, the old management resigned from the board in Nov 1993, paving the way for the new directors, led by none other than Dato' Soh Chee Wen. Dato' Soh was appointed as a director on 15 Nov 1993, resigned on 7 June 1994, was re-appointed on 6 Jan 1995 and resigned again on 27 June 1997. The mass media reported that Dato' Soh acquired his shareholdings in 1993 for between RM35-40 mln, or between RM6.80-7.80 per share.

Table 2: Dato’ Soh’s shareholdings in Autoways (mln of shares)

Table 2 shows the shareholdings of Dato' Soh in Autoways from 1993-1996. If this proves interesting reading, the major shareholders list of Autoways from 1994 to 1997 was also very interesting. They were mainly under nominee names. There was nothing unusual about this but if one looked at the list carefully, one would find that the nominee companies changed every year. Did the beneficial owners bought Autoways shares under credit ? Why did they have to keep changing nominees ?

The Beginning Of The End

Autoways then proposed to buy a 100% interest in SJ Securities S/B (SJS) for RM150 mln by issuing 21.428 mln new shares at RM7.00 each. SJS was principally engaged in stockbroking and related activities. However, the deal lapsed in June 1994. In 1993, Dato' Soh sold 4.5 mln shares in Autoways to Jadual Dinamik S/B (JD), which became a substantial shareholder of Autoways. This was in line with SJS's proposed reverse takeover of Autoways. However, this deal also fell through in June 1994.

Under the new board, Autoways aggressively ventured into the infrastructure, engineering & construction industry. Via its 100% owned subsidiary, Autoways Construction S/B, the group undertook large projects on a turnkey basis. In 1995, Autoways completed about RM100 mln worth of contracts contributing more than 90% of the group's pretax profit. To fund its construction activities, Autoways disposed a piece of land in Klang for RM4.4 mln cash, resulting in an extraordinary gain of RM1.1 mln. Autoways also completed a rights issue and a special issue in Feb 1997, raising a total of RM37.3 mln cash by issuing 9.3 mln shares at RM4.00 each. Autoways' diversification into the property investment segment was not successful. In June 1995, it proposed to buy shoplots in City Parade Shopping Complex, Kota Kinabalu for RM45 mln, to be satisfied by RM26 mln cash and 3.4 mln new shares at RM5.50 each. Autoways also proposed to issue a RM30 mln bond. However, the Securities Commission did not approve the acquisition and bond issue.

Poor Results, Poor Management

Table 1 above shows the result of the group's diversification into the engineering & construction sectors in 1995 and 1996. Turnover increased significantly, due to the completion of a premier RM350 mln training centre in Bangi and other large projects. However, this translated into only a marginal increase in profit. This was due to [1]. The poor results recorded by the rubber products manufacturing & trading division, due to increase in raw material and labour costs and [2]. Poor results from the construction division, due to poor management and aggressive bidding of contracts. The increase in debtors, work in progress and trade creditors is characteristically due to the increase in sales, but the surge in borrowings increased the financial risk of the group. Perhaps the most worrying indication was the group's high capital turnover ratio. Total assets in 1996 were only RM38.4 mln while turnover was RM321.0 mln. While it is normal for construction companies to have high capital turnover ratios, Autoways' was overtrading and inadequately capitalised. In other words, the group was too aggressive in its expansion programme. Besides, liquidity was a concern for Autoways. When the credit crunch happened in 1997 and 1998, the group could not liquidate its assets fast enough to settle outstanding obligations. Autoways' worst fears were realised during the Great Asian Crisis, when surging interest rates wiped out its thin profit margins and the cessation of funding from financial institutions resulted in a credit crunch, crippling the group's operations.

1997-1998: A Flood Of Losses

When the Great Asian Crisis struck in 1997, Autoways' engineering & construction division was badly affected. Existing projects were late to complete, new projects were slow to start and potential projects were deferred. Outstanding debts were difficult to collect and building owners delayed payments of progress claims. These resulted in project losses, cost overruns and provision for doubtful debts & development expenditures written off - see Table 3.

In addition, the group was involved in dubious share trading. In 1997, Autoways Development S/B, a 100% owned subsidiary, was subjected to claims from 2 stockbroking firms and a finance company for a net sum of RM124.2 mln in connection with share trading transactions purportedly taken. Of the RM145.5 mln credit facilities obtained, around RM110 mln were margin facilities, and of this amount, around RM60 mln were provided by Omega Securities S/B (Omega). Omega was a firm associated with Dato' Soh (see i Capital dated 19 June 2003 for the write-up on Omega). As Autoways provided corporate guarantees to its subsidiaries, provision for the claims was made, as shown in Table 3. Included in the "provision for doubtful debts - 3rd party" are deposit of RM12.8 mln paid to acquire shop lots in City Parade Shopping Complex and advance to sub-contractors of RM6.6 mln.

Table 3: Summary of exceptional items from 1997-2000 (RM mln)

Public Reprimand

On 22 May 1998, Autoways obtained a restraining order from the High Court so that all legal proceedings against Autoways and its subsidiary, Autoways Construction S/B (ACSB) are restrained for 6 months. In late 1998, the group defaulted on its loans. Autoways proposed a restructuring scheme in late 1999 which involved selling a subsidiary, capital reduction, asset injection and scheme of arrangement, but the deal was terminated in 2000. In delaying its disclosure of material litigation, involving payments of loan and margin facilities granted by a financial institution and a stockbroking firm, Autoways was publicly reprimanded by the KLSE and the Securities Commission. On 8 May 2002, the High Court had given the order to wind-up Autoways and its subsidiary, ACSB.


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