Lityan- rising on hot air

"If wishes were horses, beggars would ride on them."

Lityan was uplifted from its earlier classification as a PN17 stock on October 29 upon completion of its restructuring scheme. The completed scheme (announced in December 2007) involved:

Capital Reconstruction

This involved the reduction of Lityan’s existing issued and paid-up capital of RM102,805,882 comprising 102,805,882 Shares to RM12,850,735 comprising 12,850,735 ordinary shares of 12.50 sen each, by canceling 87.50 sen of the par value of each existing Share and thereafter, consolidating every eight (8) of the Reduced Shares into one (1) Share.

Debt Restructuring

As at 30 September 2007, the total debt due and owing is about RM170 million. Except for the respective collateral valued at RM16.0 million held & retained by the Secured Lenders ('Ascribed Security Value'), all debts was subject to the following:
(i) 15.0% of the debt to be converted into new Shares in Lityan on the basis of one (1) new Share for every RM1.00 debt with fractions disregarded; and
(ii) 85.0% of the balance of the debt to be written-off.
All interest, penalty, costs, fees and other charges arising after 30 September 2007 shall be completely waived.



The scheme also includes:
1. Special Issue of 31,452,265 new Shares in Lityan at an issue price of RM1.00 per Share to LTH (plus, a waiver to LTH from a take-over obligation);
2. Acquisition of THT Integrated Solutions Sdn Bhd (from TH Technologies Sdn Bhd, a wholly-owned subsidiary of LTH) for a purchase consideration of RM1.6 million to be satisfied by the issuance of 1.6 million new Shares in Lityan at an issue price of RM1.00 per Share; and
3. Scheme Creditors have the option to place out part or all of the Shares held by them in Lityan, totaling to up to approximately 23.1 million Shares in Lityan, to the Malaysian public, including the shareholders of Lityan except for LTH on a rights basis as well as to the senior management of Lityan at an offer price of RM1.00 per Share.

After the completion of the sheme, we can expect the following:
1. LTH will own a 51.4%-stake in Lityan;
2. Scheme creditors, which collectively owned 33.5% of Lityan's share capital, have placed out their shares [quantity & buyer(s) not specified]; and
3. LTH will be debt-free.

Investors will have to find an answer to the question: Will Lityan be a profitable concern going forward? This much is clear- Lityan incurred a net loss of RM0.4 million for the 6-month ended 30/6/2009. The first half of 2009 was a challenging period for most businesses and one can hope that Lityan will benefit from the on-going economic recovery. Many may put high hope on THT Integrated Solutions Sdn Bhd but they will be disappointed. This company, which was sold by LTH to Lityan at a price of RM1.6 million, cannot be expected to report hefty profit. If it does, the Board of LTH should be sacked for disposing off a company for a song.

Lityan is now trading at RM3.18 (as at 11.45 am) after hitting a high of RM3.46 this morning. At RM3.18 apiece, Lityan's market capitalization is RM200.6 million. To justify this market capitalization, Lityan must report a net profit of at least RM20 million (assuming a PE multiple of 10 times). I do not see how Lityan can achieve a bottom-line anywhere near that number. Based on the above, it is advisable to avoid Lityan.

Note: Lityan was re-quoted on October 30 at a reference price of RM1.00.