16 February 2009

The Credit Crunch on Overseas Operations.

I bring your attention to a news article that was published on The Star yesterday. It was a good article - highlighting the struggles of Malaysian companies doing their businesses abroad - and how it is affecting. I'm just glad that our company isnt doing anything overseas for the current moment - I mean, we've seen it all happen and tumble at Dubai, Abu Dhabi and even super boom places like Vietnam. Truly a blessing in disguise.

Read on.

The current credit crunch, which has also affected Malaysian companies doing business abroad, appears to be under control, at least on the surface for now, as few have claimed to be in dire straits for funds.

But is this the real scenario? After all, can we really expect these companies to admit that they are in a distressed credit situation? Imagine what their stakeholders and investors would think and do if they got wind of the company’s status quo with regards to their financial troubles?

So most of these companies with projects in hand would rather put up a brave front while searching for alternative solutions, such as partnering with other companies under a joint venture in order to reduce the investment cost.

Some companies have even decided to pull out of contracts and face penalty charges rather than take a risk on a project if financing is inadequate or uncertain.

There are also other companies that opt for smaller projects, ones that are within their financing ability.

This was conveyed to StarBizWeek by a chief excutive officer of a well known and listed Malaysian company with businesses spanning the globe, especially the Middle East and China.

“Our company has been quite fortunate despite the global economic crisis, a substantial number of our overseas projects are government-funded projects.

“So we are not so worried about payment default.

“The government might pay a bit slower but they normally pay.

“Still, we only have limited internal funds to finance that many big projects and accessing more credit is tough under the current environment.

“Our strategy is to be picky with projects and just ensure sufficient projects are done on an ongoing basis to maintain our 2,000 over employees, who are mostly Malaysians working abroad,” says the CEO, who requested anonimity.

The vice-president of an international financial institution with operations in Malaysia says banks were now generally very cautious with lending and project financing.

“For instance, the return-on-investment of projects, especially construction related ones such as condominiums, is based on up-take and earnings projections, which are based on occupancy. So even if a building is completed, the rental is less assured under the current economic environment,” he adds.


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