Dear Shareholders,
As highlighted in our Letter to Shareholders dated 23 November
2022 as well as SGX announcements dated 23 November 2022
and 19 January 2023, the Group continued to operate under
difficult conditions made worse by COVID-19, whose impact was
substantially felt in FY2020 and FY2021, and lingered on through
FY2022. Substantial increases in utility and construction costs,
triggered by the Russo-Ukrainian war and other global factors, added
further downward pressure on the battered margins of our projects,
especially those entered into prior to the onset of COVID-19.
The lack of construction projects in an already highly competitive
market, as well as the aforesaid tough conditions, placed the Group's
cash flows in a precarious situation, leading to the Group having to
engage its lenders in discussions for restructuring of its obligations.
This in turn resulted in higher borrowing costs to the Group.
With the pending reintroduction of certain mega projects that
were postponed due to COVID-19 and weak market conditions, the
construction market is poised for a recovery. In order to position
ourselves to take advantage of the recovery, the Group embarked
on a search to strengthen its balance sheet, either by way of
refinancing or strategic investment. As announced on 19 January
2023, we have entered into definitive agreements with a strategic
investor ("Subscriber"), comprising:
- a loan agreement for a $3 million term loan to provide interim funding for the Group;
- a conditional subscription agreement for subscription by the Subscriber of $20 million in new ordinary shares in the Company, and a further $10 million in principal amount of unlisted and non-transferrable share options.
Together with the above proposed transactions, the Group will
pursue other corporate actions including but not limited to:
- a debt restructuring exercise of its wholly-owned subsidiary,
Yongnam Engineering & Construction (Private) Limited
("YNEC") to restructure certain debts and liabilities owing to
the unsecured creditors of YNEC;
- restructuring of existing financing facilities with its respective
lenders;
- a rights issue to raise a further approximate amount of $6.3
million.
The aforesaid transactions and corporate actions, except the
proposed rights issue, are expected to be completed before the end
of FY2023. The rights issue will be undertaken at a future date to
be determined.
As mentioned earlier, the construction industry is poised for a recovery with the reintroduction of several mega projects that were postponed
due to COVID-19 and other factors. These include the Changi Airport Terminal 5 construction and the integrated resorts expansion projects.
Construction works have already begun on the MRT Cross Island Line, and we are working on securing new projects on this latest addition
to the MRT network. We are also working on potential projects, such as the Suburban Rail Loop development in Melbourne and other
infrastructural developments in Australia. Hong Kong continues to offer opportunities as the Special Administrative Region develops and
renews its infrastructure.
While the Singapore and regional governments continue to develop and renew their infrastructure, there has not been many commercial
projects introduced to the market. As the Group's fabrication facilities are primarily meant for structural steelwork projects, the lack of
commercial projects effectively caused such facilities to be under-utilized. Considering that the Changi Airport Terminal 5 and integrated
resorts expansion projects would take some time before construction works commences, the Group has decided to shut down its fabrication
facility in Malaysia for the time being. This move, while painful as layoffs had to be made, would reduce the Group's operating costs until
such time that the Singapore fabrication facility needs to be supplemented.
FY2023 would remain very challenging as the Group has to vie for new projects while carrying out its restructuring. Nevertheless, we believe
that the industry reputation and expertise that the Group has painstakingly built over the past 50 years would continue to instill confidence
in our stakeholders that the Group would weather the storm and emerge stronger.
On behalf of the Board of Directors, I would like to express our gratitude to our shareholders, staff, clients, bankers, suppliers and subcontractors
for their continued support.
Chief Executive Officer
