JAKS Resources allays concern over impact of Star dispute as shares fall

KUALA LUMPUR (March 16): JAKS Resources Bhd (pictured) saw its shares fall as much as 8.9% yesterday, as investors reacted to a report that its ongoing dispute with the Star Media Group Bhd could weigh on its net profit.

The stock hit an intraday low of RM1.44 in early trade, before paring some losses to close at RM1.48, down 10 sen or 6.33% from Wednesday's closing price of RM1.58. A total of 9.68 million shares were traded.

In a report on Wednesday, Affin Hwang Investment Bank Bhd estimated that JAKS could end up paying RM50 million in a worst-case scenario in the dispute.

"Assuming a worst-case scenario, where JAKS is liable for the RM50 million, the impact on its net profit should only be RM25.5 million as it owns just 51% of Jaks Island Circle Sdn Bhd (JIC), the joint-venture company involved in the Pacific Star development," it said.

Under the sale and purchase agreement signed between JAKS and Star in August 2011, Star is entitled to the RM50 million security fee in the form of a bank guarantee if JAKS fails to deliver Tower A on the stipulated date.

In a filing with Bursa Malaysia yesterday, JAKS reiterated that JIC has taken solid actions to counter Star’s actions in order to protect its position and minimise the liability exposure.

The JAKS-Star dispute started on Feb 19 when JAKS announced that it had instructed its lawyers to file an injunction with the court to block two financial institutions from releasing the bank guarantees to Star. In response, Star said it called on bank guarantees amounting to RM50 million after JIC failed to complete and deliver Tower A in accordance with the deadline. The High Court has fixed the hearing of the applications for the injunction on March 20.

"The company maintains its view that we have strong and sufficient grounds to support the injunction applications and the call on the bank guarantee by Star is baseless," said JAKS.

"Star had in the course of JIC’s development and execution of Tower A, instructed various changes to be made on Tower A that had prevented JIC from completing Tower A. Hence, JIC should have been given an extension of time to complete Tower A," explained JAKS.

"JIC reserves the right to claim, via arbitration, the additional costs incurred for the variation orders instructed by Star and potential costs or damages incurred/will be incurred during this process," it noted.

Based on JIC’s preliminary estimate, JAKS said the total costs and the disputed claim by JIC on Star would be much higher than the RM50 million bank guarantee called by Star.

"JIC’s solicitors are in the midst of preparing the necessary documentation on the arbitration. The company will make [a] further announcement accordingly if there is any material update on this," it added.

Since news of the JAKS-Star dispute first broke, JAKS share price has fallen 36 sen or 19.6%, from RM1.84 on Feb 19.

This article first appeared in The Edge Financial Daily, on March 16, 2018.

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