KUALA LUMPUR (Nov 5): YFG Bhd, which fell into the Practice Note 17 category recently after its auditors expressed doubt over the company’s ability to continue as a going concern, announced that two of its wholly owned units have defaulted in interest and principal payments to Hong Leong Bank Bhd amounting to RM9.91 milion.

YFG told Bursa Malaysia via a filing this evening that both companies – YFG Properties Sdn Bhd (YFG Prop) and YFG Engineering Sdn Bhd (YFG Eng) – defaulted on their payments to Hong Leong due to financial constraints. 

YFG Prop received a notice of demand yesterday, dated Nov 3, from Hong Leong’s solicitor demanding that the firm settle an outstanding balance of RM8.91 million.

The sum is in connection with a RM9 million fixed term loan granted to YFG Properties to finance the purchase of a piece of land in Damansara, here, together with a custom built single-storey detached warehouse factory annexed with a three-storey office (the Property).

On the same day, YFG Eng received a notice of demand from Hong Leong to demand for the outstanding balance of RM1 million in connection with overdraft facilities granted to YFG Eng. 

They are currently seeking legal advice and will negotiate with the bank for an amicable solution, it said.

It said the financial implication of YFG Eng’s default is immaterial to the YFG Group, since the said claim represents only 4.07% of YFG Group’s net asset as at June 30, 2014.

Further, YFG Eng is not considered a major subsidiary as its total assets, based on its audited accounts, was RM62.43 million, which represents 47.06% of the YFG Group's total assets employed as at June 30, 2014, said YFG.

However, the financial implication of YFG Properties’ default is material to the group since the said claim represents 35.96% of the YFG Group’s net asset as at June 30, 2014. 

Nevertheless, it said YFG Prop is not considered a major subsidiary of the YFG Group as its total assets based on its audited accounts was RM17.62 million which represent 13.29% of the YFG Group's total assets employed as of June 30, 2014.

“The board of directors hereby declares that YFG is solvent because based on the Property charged to Hong Leong, which has a market value that is exceeding the outstanding loan sum, YFG will be able to settle the loan upon the completion of the sales and purchase agreement of the Property,” it said.

YFG also clarified that both defaults were not in respect of default of loan stocks or bonds or in respect of payments under a debenture, and do not constitute a cross default under a different agreement.

YFG, which is principally involved in electrical and mechanical engineering, closed up 0.5 sen, or 14.3% today at 4 sen, with a market capitalisation of RM24.36 million. Year to date, the company’s market value has halved from when it was trading at 8 sen per share.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)