NEARLY two years after a scandal erupted at Tanjung Offshore Bhd, which saw board and management changes and its former group adviser and managing director indicted for fraud and money laundering, the loss-making oil and gas (O&G) services provider is hoping for a fresh start.
The group’s top executives believe most of the bad news has come out, and Tanjung Offshore is ready to turn the corner financially.
Chairman Datuk Dr Nik Norzrul Thani Nik Hassan describes the past year as a year of “hibernation” and “consolidation”, as the group cleaned up its legacy portfolio by reducing its holdings in assets that it deemed non-core and took measures to enhance its risk controls.
“We are now beyond the scandal and we are focused on realigning Tanjung Offshore’s corporate culture and strengthening its business,” he tells The Edge in an interview.
He believes there are still many bright spots within the group that it can focus on.
“For one thing, we have low gearing (with bank borrowings at RM2.97 million as at Sept 30 this year). Not many O&G companies can say that. We are pretty lucky. After selling off our marine vessel services arm, Tanjung Kapal Services Sdn Bhd (which owns 16 offshore support vessels) to Ekuiti Nasional Bhd (for RM220 million cash in 2012), we have some money left [to spend] for diversification,” Nik Norzrul notes.
Its cash and cash equivalents stood at RM47.33 million as at Sept 30 this year.
“And even though our revenue has not been outstanding, as we have been in consolidation mode over the past 1½ years, we are ready to move on. We also hope the rebranding can lead to an increase in the productivity of staff and board members and improved staff morale,” he says.
To avoid a recurrence of the fraud and money laundering within the group, Nik Norzrul says Tanjung Offshore has enhanced its internal controls and imposed a proper delegation of authority.
“We have also set up a risk management team and put in place standard operating procedures on all the work processes. We are also working on changing the culture of the workplace. In the past, we did not have an aggressive and efficient work culture. However, it is no longer ‘what if’, but ‘what do I do next?’” Nik Norzrul adds.
“Tan Sri Tan (Kean Soon, executive deputy chairman of Tanjung Offshore) once asked me, ‘Are we over-governing ourselves?’ That was because at one time we had three or four lawyers on our board. But now, we are going to focus more on the business,” he says.
It is not difficult to see why. Nik Norzrul himself is also the chairman and senior partner of Messrs Zaid Ibrahim & Co. He is a director of UMW Holdings Bhd, Fraser & Neave Holdings Bhd, Chin Hin Group Bhd and MSIG Insurance (M) Bhd and he was appointed to the board of Tanjung Offshore on March 23, 2015, following a hostile takeover of the group by himself, Tan and Datin Norhafizah Mohd Nordin.
For starters, Tanjung Offshore is calling an extraordinary general meeting (EGM) on Dec 22 to seek shareholders’ approval to change its name as the group moves to rebrand itself.
The group plans to change its name to T7 Global Bhd, in an effort to distance itself from its former image and reflect its diversification from its core business in O&G into the fields of education, aerospace and property construction.
“We hope that our shareholders will approve the name change. The EGM will also provide an avenue for us to explain our plans going forward,” says Nik Norzrul.
“We want to become a global company, so, we [must] have a name that works across a lot of geographies. We are looking to expand our business to other geographic regions like the Middle East and Australia. The “T” stands for Tanjung, while “7” represents the seven continents,” says Tan, a substantial shareholder with a 7.44% stake as at April 8 this year.
“We also want to phase out the name Offshore. Tanjung Offshore denotes only O&G,” he adds.
Tan points out that O&G is and will remain Tanjung Offshore’s core business, accounting for 70% of revenue. The remaining 30% of revenue will come from the new industries such as aerospace.
“There are still a lot of opportunities in Malaysia’s O&G sector. After we sold our marine business, we have been concentrating on the equipment maintenance services and spares to the O&G sector, which provide us recurring income. Petroliam Nasional Bhd (Petronas) owns and operates a lot of assets that are 30 to 40 years old, which require maintenance, rejuvenation and modification. Thus, this business is still viable for us to maintain and we are looking to expand further,” he says.
Tan adds that the group has also formed a consortium with foreign partners to look into brownfield development projects. “We have been talking to Petronas, but nothing has been finalised yet.”
Tan was appointed to the board of Tanjung on June 23, 2014. He has more than 30 years of experience in the O&G industry. He is also the chairman and CEO of CP Energy & Services Sdn Bhd, which he founded in 1992.
Meanwhile, Tan says Tanjung Offshore is in talks with foreign companies working in the aerospace industry to potentially form joint ventures to make aerospace components, but he declines to elaborate until a formal agreement is signed. Already, the group had in August this year incorporated a wholly-owned subsidiary named T7 Aero Sdn Bhd, whose intended principal activity is in trading and manufacturing of precision engineering aerospace-related products and equipment.
According to Nik Norzrul, the group’s diversification into aerospace is a natural extension of its existing business via its wholly-owned subsidiary Gas Generators (M) Sdn Bhd (Gastec). Gastec designs and manufactures hydrogen, oxygen and nitrogen gas generators, and related process equipment for the O&G, petrochemical, mining and healthcare industries.
“We have the technical expertise (through Gastec) to manufacture precision-machined aircraft components. It is a matter of partnering existing vendors (of aircraft parts and components) to come to this region,” he says.
On its venture into the education business, Tan says Tanjung Offshore is still continuing discussions with Hills Education Group Sdn Bhd (HEG) to identify areas for growth. On Sept 15 this year, it acquired 67% equity interest in HEG for RM167,500 cash.
The group has also been approached to buy into existing education companies.
“We haven’t decided which areas we want to go into yet. We are exploring the prospects for the various educational segments. There are ideas lying here and there,” says Tan, adding that he doesn’t expect contribution from the education business to come anytime soon.
Tanjung Offshore slipped into the red in the financial year ended Dec 31, 2015 (FY2015), posting a net loss of RM76.26 million compared with a net profit of RM1.06 million the previous year. Revenue dipped 43% to RM60.68 million in FY2015 from RM107.35 million in FY2014.
The group had attributed the net loss for FY2015 to the impairment of its investment in a commercial property in Birmingham, the UK, as well as allowance for doubtful debts totalling RM 78.97 million.
Following the kitchen sinking exercise last year, Tanjung Offshore’s first nine months of 2016 (9MFY2016) results appear much stronger. Net loss narrowed to RM4.73 million from RM49.91 million from the previous corresponding period. Revenue rose 10% to RM46 million compared with RM41.87 million in 9MFY2015.
Indeed, Tanjung Offshore expects a swift turnaround; Tan said he and his fellow executives expect to finish FY2016 with a profit.
“We are quite confident of returning to profit this current financial year, boosted by the acquisition of a 51% stake in Wenmax Sdn Bhd (for RM8 million on Nov 15, 2016) coupled with two ongoing contracts with Petronas Carigali Sdn Bhd,” he adds.
Its unit Tanjung Offshore Services Sdn Bhd (TOS) bagged a RM250 million construction work request contract from Petronas Carigali in June 2015 for the latter’s Sarawak operations for two years, with the option to extend for another one year until Jan 15, 2018.
On Sept 4, 2014, TOS also bagged a RM200 million contract from Petronas Carigali to undertake engineering, procurement, installation and commissioning works for the Operational Reliability and Integrity Gauging of Instrument-based Safeguards (ORIGInS) project, lasting three years, with the option to extend for another year until Sept 5, 2018.
Tan says the group has an order book of about RM500 million tied to the O&G sector, while its tender book is at more than RM1 billion with a 20% to 30% success rate. “The tenders are for contracts across Malaysia, the Middle East, Indonesia and Vietnam.”
Tan expects crude oil prices to hover around US$50 to US$60 per barrel in 2017. “We can expect a modest recovery in crude oil prices over the next five years, but exploration and drilling activities are expected to remain soft next year.”
Nevertheless, Tan is of the view that this is an opportune time for the group to scout for acquisitions as lower oil prices have made O&G assets more affordable.
“We may come back into the marine business. After all, our expertise is still in the marine business. The moratorium (over venturing back to the marine business) with Ekuinas/Icon Offshore Bhd is over. If an opportunity comes, why not?” says Tan. At the moment, Tanjung Offshore is chartering ships from vendors for its own O&G activities.
On its eight-storey, long vacant office building in Birmingham, Tan says the group is still exploring its options and will make a decision next year.
“We can refurbish the property [and create] 80 to 90 offices or apartments, which will give us recurring rental income. Or, if a good offer comes along, we may even sell it,” he adds.
To recap, Tanjung Offshore had signed an agreement with UK-based Cross Space Securities in March 2014 to buy its wholly-owned subsidiary Wavenet Investment for GBP6.7 million. Wavenet owns a 100% stake in Sparkling Light Investments, which owns the office building in Birmingham.
It was reported that Tanjung Offshore had embarked on a GBP4.8 million facelift of the property, creating one and two-bedroom residential units. However, it was later found that no physical work had been done on the site, prompting the group to take action against the relevant parties for non-performance and immediate recovery.
Tanjung Offshore shares have been trading in a 52-week range of 28 sen to 37 sen. Year to date, its share price has declined 13% to close at 29.5 sen last Friday, for a market capitalisation of RM114.46 million.
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