Jurong Tech (JT) has received statutory demand from OCBC for full repayment of S$21,895,125.25 and US$23,253,681.18 within 3 weeks, otherwise OCBC shall be entitled to commence winding up proceedings against the company.

Management and their financial advisors have met up with their creditor banks and financial institutions on 13 Jan ’09 and after the meeting, management said that they will continue to negotiate with the creditor banks in respect of their outstanding liabilities and are currently seeking to achieve a favorable response.

1. OCBC’s statutory demand has opened the pandora box for other creditors (other banks and trade creditors) to demand payment from Jurong Tech as well.

2. As at Sept ’08, the company has short term unsecured loans of $282,337,000, short term secured loans of $364,000, long term unsecured loans of $35,766,000 and trade and other payables of $120,504,000.

3. We had long maintained that Jurong Tech’s weak financial position is a major concern, especially so in the current global financial crisis, justifying our avoid recommendation despite its bombed-out valuations.

4. And this is especially magnified with demand falling off drastically in recent times. Bellwether tech companies have all warned that demand have fallen off significantly since late 2008 and the weakness is extending into 2009.

5. Since 12 Dec ’08, Lin Li Fang the company’s Chairwoman has seen her shares being forced sold by financial institutions, reducing her stake from 13.61% to 7.31% on 2Jan 2009. With the stock down another 50% this morning on the back of the statutory demand from OCBC, we would not rule out further force sales of her shares.

6. With its financially distressed position, further force sale of shares by financial institutions and weak demand conditions, we continue to recommend investors avoid the stock.

7. Other tech stocks with weak financial position and low interest coverage to watch out for include Innovalues (short term debts of $43.14mln and long term debts of $13.61mln versus cash of $13.3mln and interest cover is a low 2x while gearing is 71%), Huan Hsin (short term debts of $151.84mln and long term debts of $154.58mln versus cash of $70.37mln and interest cover is a low 3x while gearing is 63%) and Broadway (short term debts of $55.7mln and long term debts of $75.85mln versus cash of $24mln and interest cover is 5x while gearing is 64%).