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PETALING JAYA: Banks which had made loans to LCL Corp Bhd may have to face a “haircut” when they try to recoup their money.

LCL Corp’s default in loan repayments to at least three banks could affect the financial institutions negatively, according to a local analyst.

“How adversely these banks are affected will depend on the amount borrowed and LCL Corp’s repayment scheme over time,” he told StarBiz.

LCL Corp, which last month slipped into the financially troubled Practice Note 17 (PN17) status, currently owes a total of RM112.26mil to the three banks.

The banks involved are Affin Bank Bhd (RM69.42mil), Bank Islam Malaysia Bhd (RM2.63mil) and The Royal Bank of Scotland Bhd (RM40.21mil).

“LCL Corp has 11 months to resolve its outstanding loans to these banks,” the analyst said, noting that the company had issued a statement to Bursa Malaysia on Jan 4 that it was presently considering and formulating a regularisation plan to resolve its financial obligations to the banks.

He added that the banks might well have to settle for less than what was owed.

“Ideally they would like to receive full payment but chances are slim and winding up the company’s operations is an unfavourable option,” he said.

The analyst said LCL Corp’s debt servicing capability going forward would depend on how Dubai recovered from its credit crunch, as well as collections from LCL Corp’s debtors and the sale of the company’s non-core assets.

A financial analyst from Singapore told StarBiz that LCL Corp’s debt position could signal “more companies following the course of LCL Corp in the later part of the year, especially if the credit crunch in Dubai remains unresolved.”

He noted that some banks had tightened their credit facilities to companies with exposure to Dubai in view of the higher risk of doing business there, adding that there was a lesson to be learned from the LCL Corp episode.

“They (banks) should review their lending practice to ensure that companies they back with sizable loans should not invest, do business or rely purely on one market for their growth and expansion,” the analyst said, noting that LCL Corp had relied too heavily on Dubai, with over 70% of its business, revenue and growth derived from there.

“There was a clear signal of over exposure to one region, and too much focus on the construction industry,” he noted. LCL Corp’s core business is in providing interior fit-out services.

source HERE