BACK in September 2008, Swiber Holdings Ltd was among Forbes Asia’s 200 “Best under a Billion” companies based on the consistent growth in both its revenue and profit over the previous three years. 

In a nutshell, prior to the steep fall in oil prices in mid-2014, Swiber was the darling of investors. 

Not surprisingly, there was some trepidation late last month when Swiber filed for liquidation, with many questioning whether what is going on across the Causeway might trickle down to Malaysia. 

“I think we do have a lot of oil and gas companies [in Malaysia] that borrowed to buy assets. We have to look carefully at these companies and the banks they used — foreign banks have tighter regulations. It is a concern,” observes Choo Swee Kee, executive director of TA Investment Management Bhd, a wholly-owned subsidiary of TA Enterprise Bhd.

And he is not alone. 

PhillipCapital chief investment officer Ang Kok Heng says although he no longer looks at oil and gas counters, he expects there will be problems at asset-heavy companies.

“The ones that are down are the ones with high debt. Asset-heavy companies are the ones to watch. They may have locked in charter contracts but what happens when the contract expires? There could be problems,” he remarks. 

Other than Swiber, Technics Oil & Gas Ltd has been placed under judicial management after experiencing financial troubles.

Technics is 29.87%-controlled by local construction outfit Eversendai Corp Bhd. In late February and early March this year, Eversendai acquired additional shares in Technics for RM8.82 million, pushing up its holding to the current level from 19.62%.

As at Feb 29, the market value of Eversendai’s shares and warrants in Technics was RM18.82 million and RM1.09 million respectively and the company was sitting on a loss of RM65.8 million and RM7.46 million respectively, which is a lot considering Eversendai’s market capitalisation is about RM350 million. 

In the first three months of FY2016, Eversendai suffered a net loss of RM50.42 million on revenue of RM440.72 million, compared with a net profit of RM19.4 million on revenue of RM402.78 million in the previous corresponding period.

In the press release that accompanied its results, Eversendai says the bleeding was “mainly due to higher loss resulting from fair value of financial assets and unrealised foreign exchange loss without which there would have been a profit of RM24.2 million”.

Meanwhile, some companies have turned the corner, albeit posting measly profits, after bleeding profusely in the previous quarters. 

In its three months ended March 31, Robert Kuok’s Malaysian Bulk Carriers Bhd (Maybulk) suffered a net loss of RM24.08 million on a turnover of RM53.5 million. Maybulk’s shipping arm bled red ink but its 21.23% associate, PACC Offshore Services Holdings Ltd (POSH), which operates offshore support vessels, reported a profit of US$4.5 million for the first quarter of 2016, resulting in a RM4.03 million share for Maybulk.

Prior to this, both POSH and the shipping arm weighed on Maybulk. In the fourth quarter of its financial year 2015, Maybulk’s share of loss from POSH was RM120.75 million. 

The Petronas factor

The general consensus is that Malaysia is unlikely to be as badly hit as Singapore. Gan Eng Peng, head of equity strategies and advisory at Affin Hwang Asset Management Bhd, points out the one thing that local oil and gas companies have that their counterparts across the Causeway do not — support.

“Malaysian companies have the support of Petronas (Petroliam Nasional Bhd),” he says. Such support makes a world of difference because the national oil company’s capital expenditure for this year alone is around RM70 billion.

While Singapore’s Temasek Holdings has controlling equity in the city-state’s oil and gas companies, for example a 20% stake in Keppel Corp Ltd, it does not dish out jobs like Petronas.

Nevertheless, a weaker financial footing has forced Petronas to tighten its belt.

In its first quarter ended March 31, 2016, the national oil company registered a pre-tax profit of RM6.8 billion, 60% lower than the RM17 billion posted in the previous corresponding period. This came on the back of a revenue of RM49.1 billion, down 26% from the previous corresponding period. Profit after tax and impairments amounted to RM4.6 billion compared with RM11.4 billion previously.

Despite the poorer results, companies such as Malaysia Marine and Heavy Engineering Holdings Bhd, which is 66.5%-controlled by MISC Bhd, are unlikely to go under no matter how bad things get. Some 62.67% of MISC is owned by Petronas. 

It is the same scenario for companies such as 

TH Heavy Engineering Bhd (THHE), which is 29.81%-controlled by pilgrim fund Lembaga Tabung Haji (LTH), and ICON Offshore Bhd, in which government-linked private equity firm Ekuiti Nasional Bhd has a 42.28% stake. 

Other such companies are UMW Oil and Gas Corp Bhd, which is controlled by Permodalan Nasional Bhd (PNB), and Barakah Offshore Petroleum Bhd, in which Felda Investment Corp Sdn Bhd owns almost 10%.

The following is a survey of O&G players on Bursa Malaysia and how the slump in oil prices  has affected their financial position. 

Perisai Petroleum

Amid the decline of Swiber and Technics, the market is closely watching another possible casualty — Ezra Holdings Ltd — which has a 23.01% stake in Perisai Petroleum Teknologi Bhd and is the Malaysian company’s largest shareholder.

In its third quarter ended May 31, 2016, Ezra suffered a loss of US$242.9 million, largely as a result of a US$181.3 million non-cash loss and an allowance for a US$25 million doubtful debt, on revenue of US$125.7 million. For its first nine months of FY2016 ending Aug 31, Ezra suffered a loss after tax from continuing operations of US$548.1 million on sales of US$389.2 million.

As at end-May this year, Ezra had cash and cash equivalents of US$43.58 million, short-term bank loans of US$193.59 million and long-term debt commitments of US$523.29 million.

News reports have it that Ezra is working to raise US$100 million from potential new shareholders and has been looking to renegotiate and extend terms on US$100 million worth of loans and debt paper.

In April 2010, Ezra acquired a 19.9% stake in Perisai, forking out 48.5 sen per share or RM64 million for the block of shares from Perisai’s former managing director Nagendran C Nadarajah.

At present, Ezra controls 23.01% of Perisai, 11.83% held via Emas Offshore Ltd and 11.18% via HCM Logistics Ltd. Emas Offshore is a publicly traded company and is 75.46%-controlled by Ezra.

In December last year, Ezra had agreed to acquire Emas Offshore’s block of shares in Perisai for US$56 million, or at a 500% premium to market value, based on the cost of Emas’ investment.

There has been talk recently of Ezra looking to divest its stake in Perisai but that is unconfirmed. Ezra will likely have to take a haircut as Perisai is trading just above the 20 sen band, way below the 48.5 sen at which Ezra had acquired the shares. 

However, an executive familiar with Perisai says he has not heard of Ezra looking to sell its block of shares. “But don’t get me wrong, it’s tough for everybody in the industry.”

He adds that Perisai has chartered out one rig and has not taken delivery of another two. “It’s not like Perisai has a whole lot of unchartered rigs.”

Perisai Pacific 101 is chartered out to Hess Exploration Malaysia on a three-year contract that ends in 2017. Two other rigs, Perisai Pacific 102 and Perisai Pacific 103, have been deferred. Delivery of Perisai Pacific 102 was deferred to October this year — a second postponement — from March this year while Perisai Pacific 103 is slated for delivery in the third quarter of the year.

Perisai Kamelia — a floating, production, storage and offloading vessel — has also been chartered out to Hess Exploration on a three-year contract commencing 2013 with three one-year extension options.

The contract value of Perisai Kamelia, which is stationed at the North Malay Basin, is US$272 million. 

In its first financial quarter of FY2016, Perisai suffered a net loss of RM4.04 million on revenue of RM54.89 million. In the previous corresponding period, it had registered a net profit of RM7.03 million on sales of RM56.73 million.

As at end-March this year, Perisai had cash and bank balances of almost RM36 million, and long and short-term debt commitments of RM673.8 million and RM460.73 million.

In a report last week, UOB Kay Hian says, “Among the oil and gas stocks we cover, we have assessed Perisai as having the most material liquidity risk. On top of its 1.8 times net gearing, it has only 3.0 times cash flow cover (including associate FPSO Kamelia), which barely meets its loan covenant requirement of 3 times, and low cash balance (at RM36 million) versus an incoming maturing short-term loan of RM461 million by Oct 16. The principal local banker is RHB. We understand that more than 80% of its loan exposure (including FPSO Kamelia) is with non-Malaysian banks.”

Perisai closed at 22.5 sen last Friday, giving it a market capitalisation of RM275 million. 

UMW Oil & Gas

This is another rig owner that has seen better days. UMW Oil & Gas Corp Bhd (UMWOG) has a fleet of eight offshore drilling rigs, four hydraulic workover units and other assets. 

Despite its impressive asset base, UOB Kay Hian cautions that only one of its seven jackup rigs is operational.

With the downturn in the oil and gas industry, exploration activities have slowed and rigs are currently remunerated on a “pay-per-use” basis, which may result in low utilisation.

TA Securities, which met UMWOG’s 55.73% parent UMW Holdings Bhd last week, says the former’s management believes there is a possibility of further impairments if the crude oil price does not recover. Impairments would likely exceed last year’s RM338 million as a result of a further discount on daily charter rates (DCRs). 

Currently, DCRs in the region have almost halved to between US$70,000 and US$80,000 from between US$100,000 and US$150,000 last year.

TA says UMWOG is plagued by cash flow issues because it had amassed a large amount of short-term debt to finance the purchase of its rigs during the up cycle. Consequently, net gearing climbed to 0.9 times with the short-term to long-term debt ratio at 58:42.

In its first three months of FY2016, UMWOG suffered a net loss of RM65.08 million on revenue of RM87.68 million. As at end-March this year, it had cash and bank balances of RM887.89 million, short-term borrowings of RM2.08 billion and long-term debt commitments of RM1.54 billion.  

It is worth noting that UMWOG is more than 57%-controlled by PNB and its units. 

Dayang Enterprise Holdings Bhd

Much of Dayang’s woes stem from its acquisition of Perdana Petroleum Bhd last year. 

To recap, in May last year, the company announced that it had breached the 33.3% threshold when it acquired 5.7% equity interest in Perdana from Affin Hwang Asset Management Bhd for RM1.55 per share and nudged up its holding to 35.5%. Dayang offered 84 sen per Perdana warrant as well. 

While Dayang said it would prefer to keep Perdana publicly traded, shareholders dumped their shares on Dayang due to the weakening oil and gas market, resulting in Dayang now controlling 98% of Perdana. 

At the time of the acquisition, Dayang had said that the synergy between the two companies was part of its “expansion strategy and long-term objective of evolving into a market leader in the provision of hook up construction and commissioning services in the oil and gas industry”. 

But with the slump in oil prices, the earnings of both Dayang and Perdana have been battered. 

In its first quarter ended March 31, 2016, Dayang suffered a net loss of RM26.39 million on revenue of RM111.83 million while Perdana posted a net loss of RM11.97 million on revenue of RM42.01 million.

As at end-March this year, Dayang had cash and cash equivalents of RM243.56 million, and long and short-term debt of RM1.28 billion and RM393.78 million respectively. This works out to a net gearing of 1.29 times. 

TH Heavy Engineering Bhd

At the end of last month, THHE received a letter of intent for the supply, delivery, testing and commissioning of three offshore patrol vessels for Agensi Penguatkuasaan Maritim Malaysia. While not disclosed, the value of the contract is said to be around RM740 million and it requires THHE to partner another company when undertaking the job.

However, it remains to be seen if THHE has the capability to undertake the contract. Moreover, it has been served with several winding-up petitions. 

With LTH at the helm of the company, the government’s support for it is understandable. 

While LTH has 29.81% equity interest in THHE, in September last year, the latter issued a 1.19 billion renounceable rights issue of new Islamic irredeemable convertible preference shares (ICPS) of 25 sen par value and a tenure of five years. The issue price was 25 sen on the basis of 16 ICPS for every 15 shares held in THHE. 

LTH subscribed for 99.75% of the 1.1 billion ICPS offered and raised RM275 million for THHE. This means the pilgrim fund will control 64.57% of THHE if the preference shares are converted. Conversion can be done any time within the five-year tenure. 

In its first quarter ended March 31, 2016, THHE suffered a net loss of RM33.44 million on revenue of just RM14.52 million. It had accumulated losses of RM95.69 million as at end-March this year, when its cash and cash equivalents stood at RM48 million and total debts at RM408.22 million, giving it a net gearing of 0.58 times. 

Daya Materials Bhd

At end-May this year, Daya Materials hit a multi-year low of seven sen and has not recovered since. It closed at 7.5 sen last Thursday.

The company’s problems are linked mostly to it having chartered out only one subsea vessel — Siem Daya 1 — which is employed under Technip until 2020.

In its first three months of FY2016, Daya Materials recorded a net loss of RM29.21 million on sales of RM186.56 million. As at end-March this year, it had cash and bank balances of RM95.87 million, long-term borrowings of RM520.52 million and short-term debt commitments of RM112.17 million.

Another worrying issue is the resignation of corporate personality Tan Sri Azmil Khalili Datuk Khalid of MTD Group fame. Azmil retired from the board in mid-June this year. Nevertheless, he has no shares in Daya Materials. 

Daya’s largest shareholder is Datuk Lim Soon Foo with a 6.64% stake. Another substantial shareholder is CEO Datuk Lim Thean Shiang with 6.13% equity interest. 

Lim is well known in political circles and is on the board of several companies in the Felda Global Ventures Holdings group.

There are other O&G companies with high gearing as well — Wah Seong Corp Bhd, Barakah Offshore Petroleum Bhd, SapuraKencana Petroleum Bhd, Bumi Armada Bhd and Yinson Holdings Bhd — but they have been kept off the watch list because of the strength of the controlling shareholders or a strong order book or a well-diversified asset base. 

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