Kim Heng

[weijian]

But the big question we need to ask is, if Chairman Tan has no confident in the future of his company, will he risk his $7 million?

Hi Ben,

I thought if one has confidence in the future, the way to go would be "contributing equity" because the upside would be unlimited, at the expense of higher downside though. As debt is higher on the capital hierarchy than equity, it has better protection (and of course, at the expense of limited upside at 8.5% per annum).

Of course, another way to look at it - is that interest costs are tax deductible. Also, another consideration would be the PE fund Hildrics Capital that owns 17.6% of it - any sort of equity fund raising definitely requires their support. But one thing is quite clear - it seems like the cost of debt isn't getting cheap for companies in the O&G business?

The whole family (Tan's 3 children and brother) is entrenched in this business - taking home 2 million in salary in FY22. Surely they have confidence in it

[Ben]

Hi weijian, you are correct that equity has more upside in term of price appreciation if company does well. However, my simple thinking is this. If says Chairman Tan decides to do a right issues to raise funds, the shares base will increase and assuming all SH take up their allotment accordingly, the shareholding will be the same pre and post rights issues. So, the dividends will be shared by a larger share base and each shareholder may just get back the same amount as before. Of course, assuming the total dividends declare remains the same.

OTOH, by extending a loan, Chairman Tan will get additional 8.5% interest + dividends from the same share base. At the same time, he is buying up shares from the market and increasing his shareholding, thought I feel that the shares purchased by him is rather lite bite.

At the end of the loan term, he gets back his $7 million, would have already earned the 8.5% interest, and also would have received the same amount of dividend.

Also, Chairman Tan owns more than 40% of the company, and if he does a right issue, he will need to cough up much more than $7 million, depending on the issue price. So, perhaps a smaller loan amount extended to the company to earn a fixed fee, and use the excess cash to mop up more of the company shares is a better option for him.

But is it a better option for MI? My simple thinking is this. If one is as confident as Chairman Tan, then perhaps one can consider buying more shares from the market. Afterall, the O&G and renewable industry is looking up, plus the company has resume paying dividends, plus Chairman Tan has more skin in the game.

[Ben]

Dyna-Mac recently tied up with Kim Heng to use the latter yards to execute their projects, especially the more complex floating production storage and offloading (“FPSO”) module fabrication projects.

https://links.sgx.com/FileOpen/KHL%20-%2...eID=769311

Today, Dyna-Mac announced new contract win of $88 million. In the announcement, Dyna-Mac says Construction of the Topside Modules for a FPSO vessel will commence in 1Q 2024 and will utilise "new yard space recently secured". Is this referring to Kim Heng yards?

https://links.sgx.com/FileOpen/Dyna-Mac%...eID=773775.

Not to forget that Kim Heng has recently announced contract win from Alcatel which they said will contribute positively to the Group’s earnings per share and net tangible asset for the financial year ending 31 December 2023.

https://links.sgx.com/FileOpen/Award%20o...eID=772144

With all these going on, it is now clearer to see why the company need to seek short term financial help from Chairman Tan.

[Ben]

Kim Heng announced today that they have bagged another ship building contract worth S$10.6 million

https://links.sgx.com/FileOpen/Announcem...eID=775015

Under this contract, KH will provide design, engineering and newbuild of a self-propelled split hopper barge. This is what a split hopper barge looks like:

https://www.youtube.com/watch?v=d_3r1q3OMjg

This contract will commerce in Q4 2023 and is expected to be completed by Q1 2025.

This comes after bagging another shipbuilding contract in 8 May 2022, for a contract value of US$7.8 million. This contract is also to be completed by Q4 2024.

https://links.sgx.com/FileOpen/Announcem...eID=758228

It seems that KH will be much busier in 2024, and probably more profitable too as they said that both contracts are expected to contribute positively to their financials.

[weijian]

I think the reason/s given by the Chairman Tan on his 7mil loan to the company (related party transaction) is legit. Although, I thought he could also have contacted Chairman Ren of YZJFH who have a 500mil USD Maritime Fund kitty.

Of course, if it is a "good deal", one is naturally going to seize it themselves!

MINUTES OF THE ANNUAL GENERAL MEETING

A shareholder sought further details on the S$7 million loan with fixed interest rate of 8.5% per annum extended from the Chairman to the Company in 2023

The Chairman explained that the decision to extend the loan was to seize a time-sensitive opportunity to acquire certain vessels. The long lead time for traditional bank loan application could potentially result in missing out on the opportunity.

The Chairman emphasized that the decision to extend the loan was made in the best interest of the company. There was a need for confidentiality due to the sensitive nature of the transaction and the competitive nature of the purpose of the loan. The board was informed of the loan but due to commercial sensitivity, there was limited disclosure to the public on the detailed use of the loan.

The CFO explained that the typical interest rates for vessel loans secured against vessels are in the range of 8% to 9%. The 8.5% rate for the loan was fair and competitive which aligned with prevailing market rates when the loan was extended.

The Company had also obtained competitive quotations from other financial institutions at that juncture which offered similar rates. In addition, the CFO apprised shareholders that majority of financial institutions are more cautious when providing financing for vessels. Consequently, vessel loans are offered typically at higher interest rates as compared to other forms of collateralized loans due to their unique characteristics.

https://links.sgx.com/FileOpen/KHL%20-%2...eID=804623