This article first appeared in Corporate, The Edge Malaysia Weekly, on July 11 - 17, 2016.
EARLY last month, Otto Marine Ltd, which owns a large fleet of offshore support vessels, became the first company listed on the Singapore Exchange to be taken private since the onset of a downturn in the oil and gas sector.
Controlling shareholder Yaw Chee Siew, via his vehicle Ocean International Capital Ltd, offered 32 Singapore cents (96 sen) per share or a total of S$26.37 million (about RM79 million) for the 38.8% stake in Otto Marine that he does not own. Yaw is the son of Tan Sri Yaw Teck Seng, the patriarch of the Samling group, which has interests in the plantation, logging, property development and automotive sectors, among others. The senior Yaw is listed by Forbes as Malaysia’s 19th richest man.
Prior to the general offer, Otto Marine was trading at a heavy discount to its book value at 0.17 times. Interestingly, since the offer by the Yaw family, a possible privatisation wave is expected to hit the republic. Analysts and market watchers have a long list of potential privatisation candidates, including ASL Marine Holdings Ltd, PACC Offshore Services Holdings Ltd (in which Malaysian Bulk Carriers Bhd owns a 21% stake), Marco Polo Marine Ltd, Mermaid Maritime Public Co Ltd, Baker Technology Ltd, CSE Global Ltd, Dyna-Mac Holdings Ltd.
In Malaysia, while some industry players have admitted to having contemplated a privatisation, obtaining funding seems to be an uphill task, given the rather unexciting economic outlook.
Petroliam Nasional Bhd (Petronas) president and CEO Datuk Wan Zulkiflee Wan Ariffin summed it up well in an interview with The Edge recently on mergers and acquisitions: “Because of the difficulty in predicting what the future prices will be, there is a very big gap in terms of expectation from the buyer’s and seller’s side. The buyer’s side will say oil price will continue (being depressed) for a long time but the seller’s side will say, no, it will pick up.”
This scenario could be true for privatisations as well, perhaps.
An analyst says she sees only one likely candidate — Bumi Armada Bhd, whose share price had been beaten down to 65 sen at end-May. “There are many factors at play when you talk about a privatisation, most importantly, whether you can get the requisite funding. How much of the company does the controlling shareholder own, can they raise funds?”
Here are some companies that a handful of industry players and analysts think may take the privatisation route.
Bumi Armada
Billionaire T Ananda Krishnan controls 34.92% of the company. At its closing price of 73 sen last Tuesday, Bumi Armada’s market capitalisation was RM4.28 billion compared with RM15.5 billion at its peak of RM2.64 in April 2012.
It would cost Ananda Krishnan some RM2.8 billion to buy out the other shareholders, excluding any premium.
Bumi Armada has an order book of RM24.2 billion and an extension option of RM12.2 billion. The company is in the process of completing the conversion of three floating production storage and offloading vessels while the floating storage unit Malta is undergoing conversion this year.
In 1QFY2016 ended March 31, Bumi Armada posted a net profit of RM23.43 million on revenue of RM430.77 million. Its cash pile stood at RM859.82 million while on the other side of the balance sheet, it had long-term borrowings of RM6.04 billion and short-term debt of RM1.44 billion. Its net asset value per share was RM1.14.
While there has been talk of Ananda Krishnan looking to sell his block to MISC Bhd or Shapoorji Pallonji Mistry, none of it can be substantiated.
Malaysia Marine and Heavy Engineering Holdings Bhd
Earlier this year, there was talk of the company being taken private but this did not materialise.
MISC Bhd holds a 66.5% stake in the group while Petronas controls 62.7% of MHB.
Since September 2014, MHB’s shares have tumbled more than 65%. They closed at RM1.12 last Tuesday, giving the company a market capitalisation of RM1.79 billion.
In the first quarter of FY2016, MHB suffered a net loss of RM7.58 million compared with a net profit of RM36.03 million in the previous corresponding period. Revenue plunged to RM256.72 million from RM719.50 million previously.
However, oil and gas stalwarts doubt that MHB will be privatised.
“It (MHB) was listed in late October 2010. The talk then was that Petronas wanted to share some of its wealth, thus the listing of some of its companies,” an oil and gas executive says.
SapuraKencana Petroleum Bhd
The company’s shares hit a record low of RM1.29 on June 27 but rebounded to close at RM1.44 last Tuesday, giving it a market capitalisation of RM8.63 billion.
Other than the challenging environment, Seadrill Ltd, the vehicle of billionaire tycoon John Fredriksen, sold out of SapuraKencana in April, adding to the gloom. At its peak, Seadrill held about 12% of SapuraKencana but gradually pared down its holding in large tranches as the company suffered from the fall in oil prices.
The shares have shed 65% of their value since September 2014. As at April 30, the company’s net asset value per share was RM1.98.
In the first quarter ended April 30, SapuraKencana posted a net profit of RM110.31 million from RM1.94 billion in revenue.
The Shamsuddin family, which is the controlling shareholder with a 17% stake, would have to fork out close to RM6.94 billion in market value to privatise SapuraKencana, excluding any premium offered.
The Employees Provident Fund is the second largest shareholder with 15% while the others are Permodalan Nasional Bhd (11.76%) and Tan Sri Mokhzani Mahathir (10.18%).
SapuraKencana’s asset base, which includes producing blocks such as PM323, PM318, PM329 and the AAKBNLP field, all off Kertih, and exploration assets such as SB310, 311 and 312 planned for 2016 and SK-318 off the coast of Miri slated for production at the tail end of 2018, and its drilling and pipelay assets could nudge banks into financing such a takeover.
Boustead Heavy Industries Corp Bhd
Though not a pure oil and gas counter, BHIC does have a fabrication yard and builds offshore support vessels for the sector.
Back in 2007, Lembaga Tabung Angkatan Tentera (LTAT) and its units took over PSC Industries Bhd with much fanfare. There was so much hope for the company and it was the darling of investors back then.
Today, Boustead Holdings Bhd, a unit of LTAT, controls 65% of BHIC. The army fund also owns an 8.16% direct stake in BHIC.
This means LTAT and its unit control at least 73% of BHIC. Since October last year, BHIC’s shares have shed more than 36%.
The stock hit its 52-week low of RM1.41 on June 24 and closed at RM1.56 last Tuesday, giving it a market capitalisation of RM387.6 million.
In the first financial quarter ended March, BHIC suffered a net loss of RM19.04 million on sales of RM62.99 million.
Yinson Holdings Bhd
Last Tuesday, Yinson’s shares surged 10 sen to close at RM2.88, giving it a market capitalisation of RM3.14 billion.
Other than an announcement pertaining to the company buying back its own shares, there is no other statement explaining the sudden gain in its share price. Yinson now has 3.23 million treasury shares.
While there has been no real drop in Yinson’s share price — down only 16% since September 2014 — the argument for privatisation could stem from the current uncertain economic outlook.
The Lim family, headed by patriarch Lim Han Weng, has 33.57% equity interest in the company while Tan Sri Mokhzani Mahathir has 17.54%.
Collectively, the two hold 51.11% of Yinson. The other substantial shareholders include the EPF (10.53%) and AIA Bhd (7%).
In its first financial quarter ended April 30, Yinson posted a net profit of RM22.38 million on revenue of RM211.38 million. Its net asset value per share stood at RM1.55.
It is noteworthy that Mokhzani surfaced in Yinson in June 2014, forking out RM2.20 per share in a rights issue when crude oil prices were starting to slide.
Losing almost a third of their share prices has made most oil and gas companies attractive targets for privatisation. As market watchers say, as long as the world needs fossil fuel, well-managed oil and gas firms will remain attractive and some will regain their lost lustre. However, by then, their valuation would have at least doubled.
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