Sunday 14 Jul 2024
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This article first appeared in The Edge Malaysia Weekly on May 13, 2024 - May 19, 2024

THE clock is ticking for Toyo Ventures Holdings Bhd (KL:TOYOVEN) to secure sufficient financing by the end of next month for its 2.12gw Song Hau 2 thermal power plant project in Hau Giang province, Vietnam, which is seen as a game changer for the printing ink firm.

The impetus to ensure it has sufficient financial backing became all the more imperative after Toyo received a “notice of intention to terminate” from the Vietnamese government last month.

“The said MOIT (Vietnam’s Ministry of Industry and Trade) letter serves to notify SH2P (Song Hau 2 Power Co Ltd) of the ‘developer side default’ pursuant to Article 23.4 of the BOT (build-operate-transfer) contract, if the financing arrangement for the project is not remedied by June 30, 2024,” Toyo said in an April 4 filing with Bursa Malaysia.

It added: “Financial close of the project is maintained by June 2024, where all the lenders are currently processing the financing documents led by the exclusive mandated lead arranger.”

The exclusive mandated lead arranger is the Export-Import Bank of Malaysia Bhd (EXIM Bank), which was appointed in November 2023 to arrange the proposed syndicated financing facilities of up to US$2.42 billion (RM11.5 billion) for the project.

EXIM Bank was roped in after Toyo reportedly missed the initial completion deadline of the second quarter of 2022 as it was  unable to meet its capital obligations.

Indeed, the major project has been a long time in the works, as Toyo first submitted a proposal to the Vietnamese government to undertake a power plant project in Vietnam in 2007, before deciding to go ahead with the current development in 2011. The total investment of the project is estimated at US$3.24 billion.

Toyo, however, executed the BOT contract — which involves a 25-year concession — with MOIT only in December 2020. This was a good 12 years after the plan was announced in 2008. At the same time, SH2P, a wholly-owned subsidiary of Toyo, was incorporated to undertake the development.

Toyo is banking on EXIM Bank’s clout to land the much-needed financing.

In its 2023 annual report, the company said, “This financial support will play a crucial role in the successful commissioning of the power plant project … The group’s collective effort is dedicated to ensuring the success of the power plant project, and we anticipate the opportunity to make history within the group. Together, the group aims to create a legacy of achievement and excellence in the energy sector.”

How much financing has been committed thus far is not known, and Toyo and EXIM Bank had yet to respond to questions from The Edge at the time of writing.

But the project has obviously exacted a toll on Toyo’s balance sheet. Last month, it completed a settlement through the issuance of 295 million irredeemable convertible unsecured loan stocks at RM1.20 apiece to settle RM354 million worth of debt related to its Vietnam power plant project.

As at end-December 2022, the initial development cost of the project amounted to RM445.66 million, with the bulk comprising project consultancy fees amounting to RM407.27 million.

Toyo had cash and cash equivalents of RM87.26 million and gross borrowings of RM7.33 million as at end-December 2023, or net cash of nearly RM80 million.

In March 2023, the BOT firm entered into an engineering, procurement, construction and commissioning agreement for works valued at US$2.42 billion with a consortium comprising Sunway Construction Sdn Bhd and Vietnam’s Power Engineering Consulting Joint Stock Co 2 (PECC2).

A fund manager whom The Edge spoke to believes the project has a chance of proceeding, as Vietnam has an energy shortage and needs to beef up its electricity supply. He says the Vietnamese government is unlikely to terminate the project unless there are “serious” issues. “Everything has to be restarted if the project is aborted,” he says.

To be sure, developing power generation projects abroad is full of challenges.

Mega First Corp Bhd (KL:MFCB), for example, commenced the 260mw Don Sahong Hydropower plant in southern Laos in January 2020 — 15 years after the group signed a memorandum of understanding for the project with the Laotian government. In 2014, environmental organisations from Cambodia, Thailand and the US lodged a complaint with the Human Rights Commission of Malaysia over Mega First’s alleged role in endangering the lives and basic food source of communities relying on the Mekong River.

Given the less favourable outlook for the ink manufacturing business, Toyo has been banking on the power plant project to improve its financial performance. Apart from printing ink, the group is also involved in the automotive refinish product and masterbatch segments.

For the financial year ended Sept 30, 2023 (FY2023), Toyo recorded a net profit of only RM910,000, against a net loss of RM844,000 in FY2022. Management attributed the positive performance to the continuous improvements implemented as well as favourable foreign currency exchange. Its annual revenue dropped 19.4% to RM81.5 million from RM101.2 million a year ago, however, owing to weak market sentiment in the printing and packaging and semiconductor industries.

In 1QFY2024, it posted a net profit of RM1.01 million from a net loss of RM1.24 million in 1QFY2023.

Pembinaan Maju Wangi is the largest shareholder of Toyo, with a 9.15% stake. Other substantial shareholders are Bukit Asa Sdn Bhd (7.62%) and property group Eng Lian Enterprise Sdn Bhd (7.32%).

Controlled by Lam Peng Kee, Pembinaan Maju Wangi is involved in property investment, as well as general contractors and commission agents.

Lim Guan Lee — former non-independent non-executive alternate director to his son Lim Kee Min — has been trimming his stake in Toyo since mid-March, when he held 8.314%. He ceased to be a substantial shareholder on April 24 this year after his shareholding was reduced to 4.971%.

Coincidentally, Toyo’s share price started to slip from the RM1.30-plus range in mid-March to last Friday’s 80 sen for a market cap of RM106.3 million. Year to date, the stock is down 39.4%.


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