Table 5.1.1 Current & non-current assets of Celcom32
In the non-current asset, PPE, available-for-sale financial assets, receivables and deferred tax assets can be suitable for collateral. Furthermore, the intangible assets are not suitable to be collateral as their values are difficult to measure (Lim, Macias & Moeller 2017). As for current assets such as inventory, trade, derivative financial instruments and cash can be act as collateral while the other receivables (short-term) can only act as collateral because it has lower chance to default. To minimize the risk of MSL Bank, the value of collateral will be discounted. The loan-to-value ratio is the relationship between the amount of money that bank lends to the value of the collateral (Pritchard 2018). Therefore, in Malaysia, the Bank Negara has placed a maximum of 70% to the loan-to-value ratio (Thestar.com.my, 2017). Thus, will be minimize the risk of 60% of the loan-to-value will be used. Table 5.1.2 Safe Lending MarginValue(RM’000)StandardLVR (%)Security Value(RM’000)Non-current AssetsIntangible assets22,176,2860-Property, plant and equipment (PPE)26,909,9706016,145,982Joint Venture26,0220-Associates7,985,9740-Available-for-sale financial assets 62,0306037,218Derivative financial instruments143,77700Long term receivables535,15760312,094Amounts due from subsidiaries-0-Deferred tax assets270,04660162,028Current AssetsInventories174,27960104,567Amounts due from subsidiaries-0-Trade and other receivables4,496,637602,697,982Derivative financial instruments53,1090-Financial assets at fair value through profit or loss646038Tax recoverable41,6156024,969Deposits, cash and bank balances6,812,868604,087,72133
Assets classified as held-for-sales223,16260133,897Total69,910,99623,715,497According to the table above, Celcom had a security value of RM 23,715,497,000 can be used ascollateral to finance their RM40million of loan. Celcom provide enough security to fund the loanas Celcom provide 593 times more than value required. In conclusion, the loan should be grant as Celcom provided more security. Furthermore, MSL Bank will need to require the Celcom’s collateral claim to be first secured interest. There are no other prior liens exist against the collateral because MSL bank being a priority lien holder will have to entitle to any money if there is any foreclosure occurs. 34
6.0 RecommendationFirst Way OutThe first way out method is the cash repayment for the loan that normally applied by Celcom. It depends on the financial ratio calculated from the financial analysis to determine whether Celcom can repay by cash. Based on the liquidity ratio calculated, the current ratio and quick ratio of Celcom in 2016 is 0.53 and 0.65. The ratio means every RM1 of the debt can be repay back more than RM0.5. Since Celcom has the positive value of liquidity ratio, it shows that Celcom can repay the loan partially with cash whenever they required. However, the liquidity ratio calculated only for three years from 2015 to 2017, resulting Celcom’s ability of cash repayment are not stable. The cash repayment is not stable is due to the current and quick ratio were decline in 2016. Therefore, the current and quick ratio has both increment of 23% in 2017. It shows that there are volatile changes in the liquidity ratio, means that the approval of loan should not base on the final year calculation as it might be inaccurate.