not vested
5 December 2015
Stone Master all set for vendor financing
BY INTAN FARHANA ZAINUL
Marble and granite trader has RM3.1bil worth of deals with property developers under the scheme
STONE Master Corp Bhd, a manufacturer and trader of marble and granite products, is creating ripples in the property development market.
Over the last four weeks, it has entered into framework agreements (FA) with major property developers in Malaysia, to provide them with “interest-free vendor financing services”.
What is interesting is that within this short period of time, the total amount of vendor financing that it has agreed to provide now stands at a whopping RM3.1bil and counting. Stone Master is still in the process of entering into many more such agreements, sources say.
Stone Master is offering building-finishing material products and services to Malaysian property developers on vendor financing schemes that require a repayment only after the developer has completed the projects.
Stone Master has tied up with a number of China companies to provide its building-finishing material products and services under this scheme.
And coupled with the trade financing offering, it is clear that Stone Master is acting as an agent to the Chinese parties coming into the Malaysian market and collecting fees from providing this service.
But will the provision of the financing increase Stone Master’s trade receivables?
Going by information gleaned from its announcements, it is unlikely that this will happen.
This is because Stone Master has revealed that it has “certain arrangements” with the Chinese parties.
Stone Master had yet to reply to questions from StarBizWeek as at press time.
Sources say that it is possible that these parties include financial institutions in China, and that Stone Master has entered into “back-to-back” arrangements with these financial institutions for the provision of the financing.
The scheme does sound attractive for property developers to boost their cash flow, especially during a soft property market.
Mah Sing Group Bhd, which has entered into the framework agreement with Stone Master, has said that the agreement would give the company the option of tapping into various premium products, while enjoying cost savings from the extended credit term with no interest cost, as well as from economies-of-scale arising from the large number of projects under development.
Developers under the vendor FA will enjoy five years of interest-free financing, with the agreement value equally divided into a 60-month instalment period.
But is there a catch?
According to filings, Stone Master would be entitled to impose “late payment interest” as high as 18% per annum on the instalments.
In addition, the companies under the FA would need to provide the equivalent security to Stone Master in the form of corporate guarantees and unsold properties as collateral.
Stone Master says the FA will not have “any immediate financial effect on the group”.
Notably, Stone Master has been in the red since 2006.
For the financial year ended Sept 30, 2015, it posted a wider net loss of RM8.5mil from RM3.26mil in the previous financial year due to the weaker ringgit and lower sales.
According to Stone Master’s recent quarterly results announcement, it said that the recent tie-up with 11 vendors from China is the company’s new business direction to reduce its exposure to the US dollar.
“This is to ensure that purchases shall be transacted in the yuan instead of US dollars in order to reduce cost and secure consistent supply of goods with assured quality and to gain speedy and more extensive access to the Malaysian as well as Singaporean markets,” it said.
Shares in Stone Master have jumped 65% to 34 sen at yesterday’s close from its year’s lowest level of 20.5 sen on Aug 17.
However, on a year-to-date basis, the share price has declined 36%. In April, the company announced a share capital reduction and a rights issue.
So, will Stone Master’s business plan lift it to profitability?
While some quarters agree that the framework pact will work in favour of both Stone Master and property developers in terms of enhancing their cash flow, it remains to be seen how the scheme will work and also what will happen to other local building-finishing material companies.
Source: The Star
http://www.thestar.com.my/business/busi ... financing/