GFM takes up 49% stake in O&G downstream player

GFM takes up 49% stake in O&G downstream player
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KUALA LUMPUR (Dec 17): GFM Services Bhd plans to widen its oil and gas services scope by acquiring a 49% stake in downstream O&G company Highbase Strategic Sdn Bhd (HSSB) for RM1, and acquiring up to RM20 million worth of the company's redeemable convertible preference shares (RCPS) — subject to a minimum cash subscription of RM15 million.

In announcing the proposals today, GFM said it will also subscribe for a RM1 call option, which gives it the right to acquire up to 117,648 more shares in HSSB, representing a 2% stake, at 51 sen a share. If exercised, the option — available starting June next year until July 31, 2024 — will raise its stake in HSSB to 51%.

HSSB was founded in 2003 and is primarily involved in the provision of engineering services for the O&G industry including cleaning, repair and maintenance services of storage tanks, pressure vessels and heat exchangers.

"It has a track record of serving major clients in the O&G sector and has an estimated outstanding project value from financial year ending Dec 31, 2020 (FY20) to FY2024, [that] amounted to RM261.4 million," GFM said in a statement. If HSSB becomes a subsidiary, GFM's total order book will rise to RM1.58 billion.

Notably, GFM said HSSB has a 51%-owned joint venture with Singapore-based O&G integrated solutions provider Mun Siong Engineering Ltd — a listee on the Main Board of the Singapore Exchange. The JV is one of five players who has secured a five-year contract to provide plant turnaround services for the Pengerang Integrated Complex in Johor from Petroliam Nasional Bhd that is estimated to be worth RM247.5 million.

"This acquisition enlarges our scope of works and competencies and gives us access to a new customer segment, the O&G sector. We believe it is an opportune time to enter the O&G industry as optimism and activities for service providers are expected to pick up," said GFM managing director Ruslan Nordin.

“Moving forward, we are positive on the group’s outlook, driven by our strategic measures to further enhance our capabilities and position in the market. We look forward to reaping the benefits of our ongoing initiatives and expect this acquisition to contribute positively to the group’s future earnings, in addition to delivering sustainable value to our shareholders,” Encik Ruslan concluded.

The proposed acquisition is expected to be completed in the first half of 2020. GFM added that the proposed RCPS subscription will be funded by a combination of internal funds, equity financing and/or borrowings, and that it will get a fixed dividend rate of 6% per annum from the RCPS.

GFM shares closed unchanged at 29 sen today, giving it a market capitalisation of RM139.96 million. The stock has declined about 31% in the past 12 months.