This article first appeared in The Edge Financial Daily on January 8, 2018

KUALA LUMPUR: Loss-making TH Heavy Engineering Bhd (THHE) is looking to India and the Middle Eastern markets to expand its fabrication segment, after its fabrication unit was blacklisted by Petroliam Nasional Bhd (Petronas) in April 2016.

The blacklist excludes its unit, THHE Fabricators Sdn Bhd (TFab), from being a main contractor for Petronas’ major fabrication works.

“We’re looking at certain projects in India and the Middle East, particularly in Qatar,” its chief executive officer Suhaimi Badrul Jamil told The Edge Financial Daily recently.

Its entry into these markets is likely to take the form of a joint venture (JV), he said, whereas THHE would focus on its pivot towards shipbuilding and ship repairs in Malaysia in the meantime.

“For ship repairs, we are in talks for one (project) with a government subsidiary, while another one is commercial,” said Suhaimi, although he declined to share the value of these projects as discussions are still at a preliminary stage.

As for shipbuilding, the company is currently involved in building three offshore patrol vessels (OPVs) for the Malaysian Maritime Enforcement Agency (MMEA) via its JV with Destini Bhd.

THHE owns a 49% stake in the JV company, THHE Destini Sdn Bhd, which had earlier this year received the RM738.9 million OPV contract from MMEA. Building of the ships commenced in mid-December last year at THHE’s fabrication yard in Pulau Indah, following a keel-laying ceremony.

The same fabrication yard, which stretches 56.79 acres (22.98ha), is THHE’s only property, according to its 2016 annual report.

Meanwhile, Suhaimi said he is not overly concerned about the group missing out on jobs from Petronas, as THHE did not expect any jobs from the national oil firm due to the gap between industry supply for fabrication works and Petronas’ demand.

“If you look at the high side estimates from Petronas, there are only around 10,000 tonnes worth of jobs. Comparatively, the capacity of our yard is about 20,000 tonnes, while the capacity of Malaysia’s fabrication industry is about 400,000 tonnes in total,” he said.

On top of that, most of the jobs offered by Petronas are in Sarawak and will have to be performed by yards in that state, he said.

“That’s why we are diversifying away from oil and gas to focus more on shipbuilding and ship repairs,” said Suhaimi, who is also the group’s chief financial officer.

The move is part of THHE’s turnaround plans, which has so far seen it receive support from a majority of its creditors for its scheme of arrangement.

“With the recent approvals from our creditors, we’re about 70% of the way there in terms of financial restructuring,” Suhaimi said.

On Dec 18, the group announced that all of its secured creditors and 94.5% of its unsecured creditors had backed the group’s scheme of arrangement at its court convened meeting.

Two out of three of THHE’s subsidiaries, namely TFab and O&G Works Sdn Bhd had also received sufficient support from its creditors. However, its 70%-owned THHE Offshore Services Sdn Bhd saw 81.33% of unsecured creditors voting against the scheme.

Suhaimi said the development at THHE Offshore won’t have any effect on the scheme as the latter is not a major subsidiary. “What’s important is that we received an overwhelming majority for THHE and TFab,” he added.

THHE has consistently posted net losses every quarter since the beginning of its 2014 financial year. For the nine months ended Sept 30 (9MFY17), the group posted a cumulative net loss of RM70.13 million, significantly lower than the RM171.93 million net loss it posted in the previous year, when it booked a one-off loss on disposal amounting to RM56.3 million.

Still, revenue for 9MFY17 declined 61.55% to RM5.05 million from RM13.12 million a year ago on lower offshore crane works and other income.

THHE’s plan to bid for fabrication jobs in India would not be the first time it is eyeing India for expansion. In April 2011, it signed a memorandum of understanding (MoU) with Indian company SEW Infrastructure Ltd to jointly bid for similar jobs. At the time, THHE was listed as Ramunia Holdings Bhd.

However, after the partners failed to jointly secure a contract from India’s Oil and Natural Gas Corp Ltd (ONGC), the MoU was mutually terminated in June 2012. As Ramunia, the group was also previously blacklisted for two years by ONGC in 2009 over issues related to a US$685 million field development job.

Shares in THHE closed one sen or 9.5% higher at 11.5 sen last Friday, giving the group a market capitalisation of RM128.94 million. In the past 12 months, the stock has fallen some 28%.