Carotech

It could see renewed investor interest following announcement of the oil palm based producer’s corporate revamp under its regularization plan which could result in a change of ownership in the company. This is by virtue of a proposed private placement of new shares to potential investors under the regularization plan. Market interest in Catotech in loss making Carotech’s prospects could hinge on the entry of new substantial shareholders or white knights who may inject fresh capital into the firm and strengthen its balance sheet.

Carotech said it expects to rope in new major shareholders under a planned private placement of 400 million new shares and 200 million new warrants in the company. That could see new shareholders holding 64% of the company’s expanded issued base. Additionally Carotech has indicated that should any investor acquire more than 33% of the company under the placement, the buyer will have to make a MGO for the remaining shares in Carotech.

However Carotech had not identified investors for the placement shares, only indicating that there may be several purchasers for the placement units. Potential suitors include investors in related fields and those with financial muscle to finance the expansion of Carotech. The key questions include who the potential investors are and whether David Ho, chairman and MD and its parent Hovid will continue to play a major role in the day to day operations of Carotech? Meanwhile upon completion of this proposed corporate exercise, Carotech’s parent Hovid’s stake in the former will also drop substantially to 6.4%.

The company also plans to undertake a regularization plan which includes a capital reduction and share consolidation besides a rights issue and a private placement of new shares in the company. The company had cash of rm2.8 million against debts of rm273 million translating into a net debt of rm270 million as at Sept 2011.

Carotec 0076 GN3 - avoid!

Carotec is under GN3 now which it means it is a financial distressed company. This is due to some cash flow problems existing in the company which leading to the Company defaulting on its principal and interest servicing in respect of certain banking facilities from financial institutions.

Due to its over expanding at year 2008, now the company cannot sustain cash flow to pay its debt. This is a serious mistake done by the management. The management is hoping the overall market can be recovered back and hence re-boost back its cash flow, however from its latest quarter financial report, it showed a huge drop in its revenue, from last year RM 46.6 million to current RM 10.4 million. It seems the business is getting worse now. How are they going to clear its debt?

In the same quarter report, the inventory and trade receivables are also showed a significant drop back. Cash in hand is RM 1.5 million, BUT current debt is RM 258 million! I am wondering why they do not want to declare bankruptcy straight away?

Avoid this share even it is given as free~ because if own this share, that means you are joining its boss to clear the debt! AVOID!!