This article first appeared in The Edge Financial Daily on July 10, 2017
KUALA LUMPUR: Yinson Holdings Bhd, which recently welcomed a four-member Japanese consortium as shareholders at its second biggest floating production, storage and offloading (FPSO) facility to date, is eyeing bigger markets, more sizeable projects and better financing prospects from the partnership.
“With the latest joint venture (JV), we will be able to take Yinson to the next level,” chief executive officer Lim Chern Yuan told The Edge Financial Daily. “There are a lot of related strengths that we can draw from them in the respective disciplines they are involved in.”
On July 3, Yinson inked an agreement with the Japanese consortium to sell a 26% stake in its Ghana-based FPSO unit, John Agyekum Kufuor (JAK), at a price of between US$104 million (RM447 million) and US$117 million — marking what Lim said is the first of many future collaborations ahead. Yinson will hold a 74% stake in JAK after the stake sale. However, the parties involved have yet to finalise the settlement of the sales’ proceeds.
The consortium comprises trading giant Sumimoto Corp, shipping group Kawasaki Kisen Kaisha Ltd (“K” Line), engineering, procurement and construction company JGC Corp, and Development Bank of Japan Inc (DBJ), whose substantial shareholder is the Japanese government.
Sumimoto, together with Mitsubishi Corp and Mitsui & Co, form Japan’s “Big Three” trading companies. The group’s business spans 65 countries across six continents, with ventures in the oil and gas (O&G) exploration, development and production in the UK and Indonesia.
“We can use Sumitomo’s network to go into a new market. They know the local culture, they know the local rules, that will give us a head start when we expand [into new markets],” said Lim.
In exchange, the JV will allow Sumimoto to trace the footsteps of its peers. “You see Mitsubishi and Mitsui are already in the business of FPSO, partnering the second- and third-biggest FPSO players [SBM Offshore NV and Modec Inc].
“This is because the nature of the cash flow is infrastructure-like, which suits their investment appetite. So we are very proud that Sumitomo is partnering us. It shows that the parties involved are comfortable with us and with the nature of the business,” said Lim.
“K” Line oversaw a fleet of 430 key vessels as at end-2016. This includes 23 tankers, 49 liquefied natural gas (LNG) carriers, and eight offshore exploration and production support vessels. The tie-up provides Yinson with a potential supply of crude oil shutter tankers to be converted to FPSOs as the JV extends to other projects in the future, said Lim.
The JV, Lim noted, is a near-carbon copy of the one between Mitsubishi and Netherland’s FPSO player, SBM, which also involves another shipping group — Nippon Yusen Kabushiki Kaisha (NYK Line). “But we have two more partners on top of that,” said Lim.
This includes JGC Corp, a renowned engineering, procurement and construction contractor which has participated in 20,000 projects across 80 countries, including Petroliam Nasional Bhd’s (Petronas) second floating LNG facility, the Petronas Floating LNG2 (PFLNG2). “They know the oil and gas (O&G) sector quite well, and will contribute to the technical aspects of the business,” said Lim.
Meanwhile, Lim is hoping that DBJ’s presence will contribute to Yinson’s future financing capabilities. “I do think that if we continue to partner them (DBJ), we can manage cheaper financing. It will help in a big way because financing is one of our bigger costs,” he said.
The bank will already be providing financing support for FPSO JAK. According to a separate statement by the consortium, DBJ will supply risk money with the “special investment operations” as the contract will “help improve vitality and develop sustainability of the Japanese economy”.
Partnerships, said Lim, have proven to be a good risk-and-cost cutter for Yinson. One of the company's execution models involve partnership with vendors, which supplies Yinson with hire-in contractors, leaving Yinson’s headcount at less than 20% of its peers' with 277 employees.
“We can get our operation costs low in that sense. They also work with us from the bidding stage, so we can price our bids competitively,” he said.
This is particularly useful in the low-oil price environment, said Lim. “If the oil price is at US$40 per barrel, oil companies will adjust their cost base accordingly. We have to then adjust our cost base to allow them to produce oil at a profitable level,” he said, adding that the changes are currently at a manageable level, considering the downtrend in O&G asset prices.
However, a downturn in oil prices will still impact its clients, and may trickle down to fewer jobs if not managed properly.
“What worries us is our clients’ stability. I think oil companies don’t need high oil prices to be profitable — they need stable oil prices to know at what level they are investing in.
“They can probably adjust their cost to even US$30 to US$40 per barrel, but they need a stable oil price before they go ahead and consider the project,” he said.
Lim, however, said, as oil companies “can't just continue to watch their reserves deplete and not do any exploration at all”.
“Of course, they will be very selective. They won't look at small fields anymore, [and will focus on] more sizeable fields instead,” he also said.
In the meantime, Yinson is planning to have its core business to remain in the FPSO business together with big, stable clients, with an emphasis on cost and risk management when bidding for contracts.
“We don’t want to rush. We are not going to be more aggressive chasing contracts. We will [continue to] invest into things that we understand the risks very well.
“Until today we have not failed any delivery. I hope we can continue to keep this track record of delivering our projects within budget and on time, every time, as we grow bigger,” Lim added.
As at Jan 31, Yinson’s order book stood at US$3.7 billion. It operates six vessels and is building another — the Vietnam-bound Ca Rong Do FPSO, valued at US$1 billion.