This article first appeared in The Edge Malaysia Weekly on March 25, 2024 - March 31, 2024

"IT’s a very good day,” Eversendai Corp Bhd founder Tan Sri A K Nathan tells The Edge in an interview last week, in a cool corner of his sprawling Damansara residence sheltered from the heat wave currently sweeping Malaysia.

The largest shareholder, executive chairman and group managing director of structural steel specialist Eversendai is in high spirits, fresh from announcing RM5.4 billion worth of new contracts and what he describes as progress on the company’s loan restructuring.

Among the RM5.4 billion job wins, the biggest is the structural steel works contract for a mind-boggling, state-endorsed outdoor ski village in Saudi Arabia dubbed Trojena, which boosted Eversendai’s order book to a record RM6.6 billion.

“It’s a big, big breakthrough. We have been here [in the Middle East] for the last 27 years, but not in this magnitude,” says Nathan.

“I see Eversendai being able to showcase profits quarter by quarter. This will be a positive year and 2025 will be on another level altogether.”

For the 40-year-old company, the Middle East is its biggest market, where it undertook and completed structural steel works for the world’s tallest building, the Burj Khalifa in Dubai, in the 2000s and, prior to that, the iconic Burj Al Arab, also in Dubai.

At the start of the interview, Nathan discloses that part of his Damansara residence was erected using structural steel produced at Eversendai’s facility in the Middle East. “It’s the strongest part of the house,” he says proudly.

Eversendai also has an impressive track record at home, having worked on Merdeka 118, Tower 2 of the Petronas Twin Towers and the KL Tower, riding the booming Malaysian economy in the 1990s.

Interestingly, Nathan is not a trained engineer. He started out as an insurance agent but got into the construction sector in 1982 to undertake works related to the construction of the Dayabumi building in Kuala Lumpur. He got his big break in 1984 to erect the steel structure of Proton Holdings Bhd’s manufacturing plant in Shah Alam.

With a track record in the Middle East, Eversendai is now benefiting from the construction boom in Saudi Arabia amid the country’s tourism pivot as part of its long-term diversification strategy away from oil. Saudi Arabia will host the Asian Winter Games in 2029 — hence the ski village — and the FIFA World Cup in 2034, which typically entails the construction of multiple stadiums.

Trojena is located in the hilly areas of the Tabuk province in northwest Saudi Arabia, near the Red Sea bordering Jordan and Egypt. Apart from the skiing slopes and resort, it will feature chalets, apartments and luxury mansions.

Trojena is part of Neom, an ambitious new city spanning 26,500 sq km envisioned by Saudi Arabia’s Crown Prince Mohammed bin Salman. Neom includes other mega projects such as the Line smart city that stretches over 170km.

However, despite the near doubling of its share price after the announcement of the RM5.4 billion job wins, investor interest in Eversendai has been considerably lacklustre compared with other construction companies on Bursa Malaysia, at a time when the sector is back in vogue on improved activities locally and overseas.

Given that Eversendai’s outstanding order book of RM6.6 billion is 24 times its market capitalisation of RM261 million, it is fair to say that scepticism abounds. Eyebrows were raised over the size of the contracts at hand, the degree of difficulty in bringing to reality the ski village — with its 36km of ski slopes to be made available for outdoor skiing three months a year — as well as the financial strength that will be required to execute such a project.

In the past, several Malaysian construction companies have attempted to seek their fortune in the Middle East but went through a tough time. And just two years ago, the announcement of billion-dollar contracts in the Middle East by locally listed Serba Dinamik Holdings Bhd turned out to be false, spooking the investing fraternity.

“People have this phobia,” says Nathan, who is adamant that Eversendai is “ready to take off” after years of underperformance since its 2011 listing due to a badly timed oil and gas venture (see “Closing the O&G chapter” on Page 54) and, later, the Covid-19 pandemic’s many lockdowns that severely affected the construction sector.

Eversendai secured the Trojena contract directly from Neom, which is wholly-owned by Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF).

For the project, Eversendai is partnering with Albawani Co Ltd, which has secured other construction contracts from PIF. Albawani is part of the construction outfit Albawani Group, in which PIF has a minority stake.

The collaboration will see Eversendai having a majority stake in the project and responsible for the steel works while Albawani will be responsible for banking facilities and associated concrete works, Nathan explains.

However, he declined to reveal Albawani’s share of the contract. “Its just a minority stake,” he remarks.

The job’s biggest risk is its complex logistics, that is, bringing the steel structures up the mountain. “The client is taking up that responsibility,” he says.

Another company — Saudi Arabia-based Al-Ayuni Investment & Contracting — will take on the foundation works for the Trojena mega project, which will have other works packages for the development of hotels and dams for an artificial lake, among others.

As for Eversendai’s scope to fabricate steel in its facilities located in Qatar, the UAE, and erect the steel structures upon delivery on site, Nathan points to the group’s core ability of coming up with the right construction methodology for complex steel structures. “There’s not one steel structure that we cannot build,” he says.

Eversendai will be employing up to 2,500 workers for Trojena at the peak of the work progress.

Despite the company’s cash balance of only RM128 million and net gearing of 2.7 times as at Dec 31, 2023, Nathan says it is capable of taking on the new jobs, as the client will provide advance progress payments.

“[There’s] no need [for fundraising]. It is cash in your pocket for you to spend smartly,” he adds.

The company also makes it a point to reduce its exposure to steel price fluctuations by making the necessary orders upon the contract win and avoiding price speculation.

Nathan, who turns 68 this year, is “personally getting involved” in the project, from tendering to execution, to ensure smooth delivery. Furthermore, Saudi Arabia’s national pride is at stake and the project’s high profile and urgency will entail prompt payment by the client, he says, when asked about potential payment issues. Work has already started, with the first steel column to be erected on June 20, he adds.

Of the RM5.4 billion worth of jobs, those for Trojena will take the longest at two years and four and a half months. Meanwhile, the project in the UAE involves structural steel works for the 1,500-room Wynn Al Marjan Island Integrated Resort Development in Ras Al Khaimah. In India, it secured two structural steel projects for the Rupa IT building and the Rupa Crystal IT building from Rupa Group, which focuses on the construction of commercial buildings, data centres and resorts.

Nathan explains that Eversendai has stopped announcing single-contract wins because of non-disclosure agreements (NDAs) and to avoid having its competitors work out its rates based on the steel tonnage involved. “Our bids are not the lowest [except for several instances during the pandemic when job flow was scarce],” he says.

For the new contracts, Nathan sees its gross margin in the range of 10% to 15%, due to the complexity of the works.

Nevertheless, the massive contract value does raise some questions, having seen the financial irregularities at Serba Dinamik.

The company’s Ebitda (earnings before interest, taxes, depreciation and amortisation) margins ranged from 7.7% to 10.3% over the last 10 years, reaching the highest level of 11.35% in FY2023. Its net profit margins ranged from 3% to 4.7% during the period, but slipped to 1.8% in FY2023 as interest expense jumped to 56% of Ebitda.

Eversendai’s previous order-book peak was RM2.88 billion in 2020. But the Covid-19 lockdowns slashed its fabrication capacity to between 20% and 30%, and the company booked massive losses in the ensuing years of 2021 and 2022 instead of staging a recovery.

“It was the toughest period of my life,” Nathan says, recalling the episode that caused further delay to Eversendai’s recovery from the oil and gas downturn in the 2010s. He is quick to add that the company terminated none of its 15,000 workforce during the pandemic.

At one point, its external auditor in its FY2022 annual report flagged Eversendai’s ability to continue as a going concern, as its current liabilities had exceeded its current assets.

Following its capacity expansion in the Middle East, Eversendai’s net debt position ballooned to a peak of RM1.06 billion in 2018 from RM294 million at end-2014, and remained elevated at RM934 million at the end of last year.

Receivables, which rose from RM441 million in 2014 to RM1.02 billion in 2018, stood at RM898 million at end-2023. The increase was partly due to a related-party transaction to build two liftboats for RM580 million for Vahana Group, a private entity linked to Nathan. For the two vessels, Vahana owed Eversendai RM239.7 million as at September last year. 

In FY2016, Eversendai booked a net loss of more than RM270 million, dragged by RM101.7 million in impairments related to its investment in Technics Oil & Gas Ltd and RM74.1 million in provisions for doubtful debts. Its five-year plan to hit a full-year revenue of RM2 billion by 2017 fell short by RM200 million.

During the pandemic, its net losses came to RM137.5 million in FY2020, RM137.1 million in FY2021 and RM361.5 million in FY2022. In this period, two of its clients in the UAE went belly up. “We have written that off,” says Nathan.

In 2022, Eversendai booked another impairment on contract assets and receivables of RM171 million, up from RM55.8 million in 2021 and RM71 million in 2020. Nathan says the impairments are largely done and the company is working on collecting the outstanding receivables (over RM600 million, excluding those from Vahana) in the Middle East. In 2023, it booked a reversal on trade receivables of RM82.16 million.

Retained losses totalled RM449.67 million as at end-2023. The net current liabilities position (current ratio of less than 1) persisted until the end of last year, which is partly attributed to Eversendai’s US$115 million term loan from its early days post-listing. This will be resolved soon as part of a restructuring exercise to extend the tenure and “make it more palatable”, says Nathan. Payment owed to the company for the liftboats will also be resolved soon, allowing the company to further slash its debts to a more comfortable level.

“That’s life,” he recalls. “I’ve learnt a lot and I’m not going to make any more mistakes … Ultimately, the buck stops with me. It [the company] is my responsibility.”

With the jobs in hand, Eversendai is focusing its fabrication capacity on Ras Al-Khaimah, Sharjah and Dubai in the UAE, as well as Qatar and India. Several equipment from its Malaysian and Thai facilities have been moved to the Middle East, says Nathan.

Those who bought into Eversendai in its early days will certainly demand more of the company. It listed on the Main Market in 2011 at an IPO price of RM1.70, which raised RM273.19 million and valued the company at nearly RM1.32 billion.

After touching a market capitalisation of RM1.39 billion in its early days of trading, its share price gradually declined and eventually slumped to less than 30 sen in 2023, erasing RM1.3 billion in market cap in the process, prior to the stock’s recent resurgence.

Acknowledging the episode, Nathan, who owns 69.77% of the company, says Eversendai is putting the house in order to capture the upside of its contracts. “I tell my staff, let’s go back to the glory days. If, before this, our problem was not having enough jobs, moving forward, our problem is going to be not having enough capacity [to take on new ones],” he adds.

Now, all eyes will be on Eversendai as it takes on the staggering Trojena project. 

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