$57m syndicated loan shores up Middle East Specialised Cables/MESC-Jordan

AMMAN — Several banks are extending a lifeline to the Middle East Specialised Cables Company/MESC-Jordan with a multimillion dinar syndicated loan.

The company, 49 per cent owned by Saudi Arabia's Middle East Specialised Cables Company, has all the product range of low, medium and high voltage power cables at plants in Mafraq, 60 kilometres north of Amman.

As a public shareholding company listed on the Amman Stock Exchange, MESC-Jordan also manufactures aluminum conductors as well as electrical and building wires.    

Under the debt restructuring deal with the Housing Bank, Capital Bank of Jordan, Jordan Commercial Bank, and Jordan Kuwait Bank, MESC-Jordan will also be given a working capital short-term credit besides the long-term financing.    

According to the auditor, EY/Jordan, all the assets of MESC-Jordan and its affiliate, MESC for Medium and High Voltage Cables Company,   were hypothecated as security for the lending in addition to the affiliated company's guarantee and the endorsement of insurance policies on the company's assets to the agent bank, namely Housing Bank.  

At the end of March 31,2015, the company's debts to the banks totalled JD46.2 million and the cost of financing during the first quarter of 2015 stood at JD0.4 million, compared to JD0.6 million in the first quarter of 2014.

The auditor's report showed JD51.7 million in accumulated losses at the end of the first quarter of this year. 

"The amount represents 133 per cent of MESC-Jordan's JD38.9 million paid-up capital and, consequently, depicts a JD9.3 million deficit in the shareholders equity," EY/Jordan wrote.

The annual report disclosed the losses from 2010 until 2014 to be JD11.5 million, JD12.1 million, JD6.4 million, JD3.2 million and JD4.6 million respectively.  

The auditor indicated in the quarterly report that the general assembly of shareholders decided in an extraordinary meeting in 2011 to increase the company's capital by JD20 million through a convoluted process.

MESC-Jordan obtained the approval of the Ministry of Industry, Trade and Supply for raising the capital within a three-year grace period from December 5, 2013 to rectify the situation and avoid liquidation.

"But with the interim financial statements under preparation, the company has not yet received the approval of the Jordan Securities Commission," the auditor said.

EY/Jordan added that the quarterly results were prepared on the basis of an ongoing concern company although the financial statements show a deficit in net shareholders equity and operational losses that affect MESC-Jordan's capability to continue. 

"The company's potential to continue as an ongoing concern depends on  making the most of its assets, meeting its obligations, and completing the procedures for a syndicated loan to restructure the indebtedness," the auditor concluded.

"Signing the syndicated loan agreement, with the aim of restructuring the long-term diminishing loans that are outstanding and extended by the participating banks, was a highly important accomplishment achieved by the company during 2014," MESC-Jordan Chairman Abdul Raouf Al Bitar wrote in the 22nd annual report.

He said in the foreword that the $56.96 million aggregate loan amount, to be repaid over eight years, would greatly support the company's financial position and maintain the liquidity necessary to back up the operational expenditure as well as raise the efficiency of the cash flow in order to fulfill obligations.

"Moreover, the interest rate specified in the syndicated loan agreement is less than the charge in most of the other previous agreements and, subsequently, brings down the financing costs by 11 per cent from those in the past year," Al Bitar indicated.

According to the profit and loss statement at the end of March 2015, MESC-Jordan generated a JD0.6 million gross profit, compared to JD0.5 million at the end of March 2014, as sales were higher at JD6.5 million from JD5.8 million during the first quarter of last year.

But the end result was a JD1.2 million loss in both periods when various administrative, selling and distribution expenses are taken into consideration in addition to financing costs and the cost of unutilised production capacity.

The 2014 annual report listed several misfortunes that impaired MESC-Jordan's operations, foremost of which the regional instability.

"Exports to Iraq last year fell by 59 per cent," Bitar pointed out, noting that the neighbouring country accounted for more than a quarter of the sales volume in the previous year.

He said that the drop in the price of copper also led to a wait-and-see attitude among many international contractors who delayed purchasing orders and, consequently, caused a big drop in MESC-Jordan's sales volume.

Sales as per  the profit and loss statement at the end of last year totalled JD29.6 million (JD39.3 million in 2013).

External sales accounted for JD24.7 million (JD30.6 million) of the total and local sales amounted to JD4.9 million (JD8.6 million).

Another important drawback mentioned in the report was the extremely severe competition, as a big increase in the number of local or foreign producers led to a reduction in the company's market share and lower selling prices and profitability.

Despite the acute competition from newly established firms with similar line of activity, MESC-Jordan estimated its share of the overall market, inside and outside the Kingdom, at 30 per cent.

"Manufacturers of cables and electric wires are operating in a market  marked by a cut throat competition due to oversupply from various sources, especially from abroad," the report stated, noting that MESC-Jordan was still able to enter several markets, such as Iraq, Saudi Arabia, United Arab Emirates, Syria, Libya and Sudan, in addition to its share of the local market.

"Because the prices of raw materials for this industry is almost equal, the competition remains confined to the capabilities of each entity in terms of lowering production costs and securing financing at lowest costs," the report indicated.

Within this context, the company intends to raise the profit margin related to the cost of production inputs.

To address all these hurdles, the company's plans include restructuring the sales and widening the base of clients abroad, focusing in particular on international contractors where the profit margin is better than electricity companies or traders.

MESC-Jordan, whose workforce comprises 326 employees, is also planning to develop new products that would enable it to penetrate new non-traditional markets and sectors on the regional level, including all types of renewable energy.  

While aiming to expand the share in the local market, the report  mentioned that payment terms will be modified, shortening to tenor that  customers enjoy to settle their dues to the company.

Financially, the gross profit as of December 31, 2014 amounted to JD2.6 million (JD3.5 million) but the net result was a JD4.6 million loss (JD2.3 million loss) after deducting the cost of unutilised production capacity, financing costs, administrative and selling expenses, and the company's share of the loss at an affiliated firm.

According to the balance sheet at the end of the last year, total assets dropped to JD42.3 million (JD50.8 million), of which JD23.3 million (JD25.6 million) were fixed assets. 

Current assets, totalling JD19 million (JD25,3 million), include JD3.3 million (JD6.2 million) net receivables, after deducting JD4 million in doubtful assets in both years.