Sunday, March 17, 2013

Poh Lian $60m in the red 'due to mismanagement'

The Straits Times  |  Mar 16, 2013
Director outlines building firm's plight in court filing

Buiding company Poh Lian Construction is in a $60 million black hole because it mismanaged funds and entered poor contractual deals, according to one of its directors.

Mr Peh Pit Tat outlined the company's plight in a 127-page document submitted as part of Poh Lian's application for a judicial management order earlier this month.

A hearing on this will be held on April 5, but an interim judicial management order was granted on March 7, which protects the assets of Poh Lian - a wholly owned subsidiary of United Fiber System (UFS) - until the court rules next month.

Mr Peh joined the board in September 2011. Two directors - executive chairman Wisanggeni Lauw and chief operating officer Leong Chee Keng - told him then that the company was in a "healthy financial position".

The two men ran the company's day-to-day operations, but no longer sit on the board now.
Mr Lauw resigned on Jan 22. Mr Leong remains as chief operating officer, but his role is to focus on project managing the incomplete developments.

In the court filings, Mr Peh said: "It came as a shock therefore when I was informed by the previous management that some time in October 2012, (three property developments) were incurring substantial losses due to cost overruns."

The developments were the condominiums Sophia Residence, Goodwood Residence and Bishopsgate Residences.

Poh Lian's financial situation plummeted further when it realised the cost overruns for the three developments amounted to $29 million in January.

It estimates that a further $37 million is needed to pay subcontractors to complete these projects.

Mr Peh noted that Poh Lian had submitted tenders at uncompetitive prices. The former management team failed to factor in additional costs in the light of project delays for the Sophia and Goodwood projects, which are being developed by GuocoLand.

Poh Lian also incurred substantial losses due to a change in payouts for subcontractors on the Goodwood project.

"In March 2012, the senior manager for operations, Mr Thomas Ng, decided to replace subcontractors who were paid on a 'job done' basis with others whose employees were paid per hour," wrote Mr Peh.

This is usually done only when a development is close to completion and requires minor works, but that was not the case for the Goodwood project.

From April to December last year, up to 600 workers were paid on an hourly rate, leading to massive cost overruns, wrote Mr Peh. Mr Ng was asked to leave Poh Lian earlier this year.

As of Jan 31, Poh Lian owed subcontractors almost $41 million for seven ongoing projects. The company also has contingent liabilities of another $136 million if it is late in completing developments.

Work on all seven developments came to a halt after the application for interim judicial management was lodged last week.

Four of these are still profitable: St Anthony's School, H2O Residences in Sengkang West and two HDB Build-to-Order projects in Bukit Panjang - Segar Grove and Senja Gateway.

Parent company UFS is unable to extend financial support to its construction arm due to contractual obligations struck in July last year.

Poh Lian's management hopes the appointed interim judicial managers Tam Chee Chong and Andrew Grimmett from audit firm Deloitte & Touche can come to a resolution to minimise losses.

The judicial managers have the authority to source for new investors, distribute the assets and hold negotiations with the various stakeholders and creditors. They also have a say in determining which projects Poh Lian should continue working on or give up.

Mr Peh's court papers also include a detailed explanation on why it is not in the best interests of creditors to let the construction company go belly-up.

He cites further delays on its seven projects, unfair preference to creditors if its assets are distributed and the declining value of those assets if sold separately rather than in their entirety.

At least five lawsuits have been filed against Poh Lian, one from an individual who is claiming $250,000, and four from Kao Lee Aluminium Industrial, which is asking for more than $1.15 million.

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C

Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)

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