Weststar gauging the market for listing of aviation unit

This article first appeared in The Edge Malaysia Weekly, on September 4, 2017 - September 10, 2017.
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AFTER having put the plan for an initial public offering (IPO) of Weststar Aviation Services Sdn Bhd on the back burner for three years, the Weststar Group is once again looking at listing its offshore air transport arm. However, it is not considering only Bursa Malaysia for the listing, says founder and managing director Tan Sri Syed Azman Syed Ibrahim in an exclusive interview with The Edge.

“We are ready to list. We are appointing the bankers and they have done the primary evaluations, and we are ready to submit [the application]. We have spent a lot of money and everything is ready. It is just a matter of whether the environment is right or not,” he says.

“We are also watching closely the performance of Bursa. We will observe the trading activity. If there is not much activity, then maybe we will look at other markets. Hong Kong looks good.”

However, the relatively low crude oil prices may put a damper on the listing plan. At the current price of about US$50 per barrel, Weststar may not get the right valuation for Weststar Aviation, says Syed Azman.

Weststar Aviation claims to be the leading offshore air transport operator in Southeast Asia with 32 helicopters in its fleet, serving oil and gas producers in the region. The company has eight helicopters on order, which will increase its fleet to 40 by 2020.

It counts ExxonMobil, Royal Dutch Shell plc, PTT PCL, JX Nippon Oil & Gas Exploration Corp, Santos Ltd and Petroliam Nasional Bhd (Petronas) as its clients.

Weststar Aviation, majority-owned by Syed Azman with a 59.5% stake, is the largest provider of offshore air transport services in Malaysia and Thailand. Syed Azman claims that the company has an 80% market share in Malaysia. Weststar Aviation has also started some operations in Indonesia.

Apart from Syed Azman, US-based private equity firm KKR & Co is also a major shareholder in Weststar Aviation with a 39.9% stake. KKR acquired the stake in 2013 in its first deal in Malaysia.

People familiar with the deal say KKR bought the stake for RM650 million, valuing Weststar Aviation at RM1.63 billion then. This valuation should have gone up now as Weststar Aviation had assets worth RM2.23 billion as at Dec 31, 2016.

As a private equity company, KKR needs to exit its investment after a few years. However, according to Syed Azman, the KKR fund that invested in Weststar Aviation has a 12-year cycle, which makes it a long-term fund.

The plan for the listing in 2015 was put on hold due to falling crude oil prices. Now that they have stabilised at around US$50 per barrel, Weststar could be taking another shot at an IPO to realise shareholders’ value and tap the capital market for funding as the group expands.

 

Africa is the next market for Weststar Aviation

Apart from Southeast Asia, Weststar Aviation also has clients in Africa. However, due to the distance between these clients and its bases in Malaysia and Thailand, such operations are putting a strain on its resources, says Syed Azman.

“We participate in tenders worldwide, but we would rather focus on Southeast Asia because it is easy to support the operations when they (the clients) are nearby. For example, we used to have operations in Africa and we had to support them from Malaysia,” he says.

“Our rotating crew, spare parts ... everything has to come from Malaysia. So, it was a very costly affair. Of course, we still made profits. But if there is a lot of business in this region, we would rather focus [our attention] here.”

With the company participating in tenders in Angola and Gabon, it has a plan to set up a base in a West African country. The strategy is so that Weststar Aviation can support its clients in countries such as Morocco, Nigeria, Mauritania, Senegal and Ghana, says Syed Azman. However, this is not an immediate plan.

“There’s a lot of growth in South America as well. Petronas is also in Mexico. We have been invited to participate in Brazil, but at the moment, we are not ready for that ... unless we have a base in West Africa to support our operations in South America.”

In the financial year ended Dec 31, 2016 (FY2016), Weststar Aviation registered a net profit of RM94 million on revenue of RM717.9 million, according to the company’s filing with the Companies Commission of Malaysia.

 

Automotive to be the biggest business by 2024

Syed Azman has benefited from the approved permits regime to import completely built-up cars, and Weststar was built on this business.

Hence, he has an affinity for the automotive business of the group. Now that Weststar Aviation is a strong brand in the offshore aviation sector, he is once again building up the automotive business.

Weststar Maxus Sdn Bhd, which partners SAIC Motor Corp Ltd, is Weststar’s workhorse for the automotive business. Weststar Maxus distributes SAIC’s people mover G10 and niche commercial vehicle V80 in Malaysia and Indonesia. It is also working to export SAIC vehicles to Thailand, says Syed Azman.

Since its launch last year, the G10 has attracted considerable interest in the country, with over 1,000 units sold. Together with the V80, which is mostly sold to government departments and enterprises, Weststar Maxus has sold about 3,000 units since 2011.

While these numbers are small compared with the more established brands in the market, Syed Azman says he is confident that Weststar Maxus will be able to grow fast and become the biggest contributor to the group’s revenue by 2024.

“We have a seven-year plan, and by the seventh year, we should be selling 7,000 units a year. I am very confident that we will meet the target before 2024. It is a modest target. Mark my word, in seven years’ time, the automotive business will be the group’s largest business,” he says.

To get there, Weststar Maxus will bring in more models from SAIC to be distributed in Malaysia and the region, says Syed Azman. He is certain that the models will be accepted by Malaysians because of their quality and advanced technology.

By 2024, when the business reaches the target of selling 7,000 units a year, Weststar Maxus will start its own assembly plant, he says. At present, the G10 is assembled by a contract assembler in Johor.