Monday, January 10, 2011

O&G sector to see more M&As?

KUALA LUMPUR: This year is poised to be an exciting one for local oil and gas (O&G) players on the back of improving prospects as crude oil prices continue to rise, with observers saying this could also mean more mergers and acquisitions (M&A) within the sector.Local analysts have been forecasting that this year will see several major trends, including bigger orderbooks and tenders in the pipeline, strategic partnerships being announced and more corporate exercises including mergers, take-overs and capital-raising activities taking place.

News of oil major Petroliam Nasional Bhd (Petronas) opening up marginal oilfields to niche players, as well as five new tax incentives to encourage domestic exploration activities created some excitement in the market, with many O&G counters seeing increased investor attention.

The exploration activities are set to benefit hook-up and commissioning (HUC) job players such as SapuraCrest Petroleum Bhd, Kencana Petroleum Bhd and Petra Energy Bhd, as well as fabrication yard operators who are also poised for a consolidation, according to UOBKayHian.

“Malaysia Marine and Heavy Engineering Holdings Bhd’s (MMHE) yard in Johor is currently operating at full capacity, and additional yard capacity and size would fuel its growth,” it said in its January 2011 strategy report.

“MMHE could be looking into Sime Darby’s assets or even other Petronas-licensed smaller fabrication yards that are less well run, such as Oilcorp Bhd which is facing solvency issues.”

Maybank Investment Bank Research reiterated the view, saying it expected the number of offshore fabricators to contract to two from six at present.

“We think MMHE, 65% held by MISC Bhd and ultimately Petronas, will be an acquirer. Ramunia and Sime Engineering, 100%-owned by Sime Darby are the likely targets,” it said.

“In addition, we foresee new assets/businesses being injected into Ramunia and Scomi Marine, both PN 17 counters (i.e. cash rich, but without a core business).”

The Edge Financial Daily last week reported that Ramunia Holdings Bhd is said to be eyeing Borcos Shipping Sdn Bhd, which provides offshore supply services for the O&G sector, as part of its regularisation plan.

In addition to fabricators, Maybank IB Research also highlighted several marine vessel operators as potential acquisition targets, namely Alam Maritim Resources Bhd, Petra Perdana Bhd and Tanjung Offshore Bhd, as well as private limited offshore support vessel provider Jasa Merin (M) Sdn Bhd, whose parent company is SILK Holdings Bhd.

“These operators have undemanding valuations but stretched balance sheets with high gearing levels, which complicate their growth prospects,” it said in a Jan 7, 2011 note.

The brokerage firm also highlighted that cash-rich SapuraCrest could be keen on acquiring marine vessels as a strategic asset to complement its installation of pipeline and facilities (IPF) operations.

UOBKayHian had also highlighted SapuraCrest’s eligibility as a potential M&A target, due to its ability to fund its expansion plans easily across the entire O&G upstream value chain.

Another possible acquirer could be Ekuiti Nasional Bhd (Ekuinas), as it may be looking to accelerate consolidation among bumiputera marine vessel owners, according to Maybank IB Research, saying it is likely to start with Tanjung Offshore, in which it has a 24% equity interest.

“The key driver of consolidation in this sector by Ekuinas is to create a stronger entity both in terms of size and financials,” an analyst told The Edge Financial Daily. “At present, most vessel players are highly geared with limited room for expansion.”

Meanwhile, market speculation had also recently surfaced that Alam Maritim Resources Bhd could be in the preliminary stages of exploring a working relationship with Coastal Contracts Bhd.

An industry source told The Edge Financial Daily that the partnership could prove promising as there did not appear to be an overlap in their businesses.

Alam Maritim is primarily involved in the supply of offshore supply vessels for the O&G sector as well as underwater services. Meanwhile, Coastal is a Sandakan-based company whose areas of business include vessels manufacturing and chartering.

“Catalysts for cooperation include Coastal’s fabrication shipyard and the Sabah connection, while Alam Maritim has been said to be game for strategic tie-ups,” the source said. “Main issues would be pricing and control of management.”

Maybank IB Research also highlighted upcoming high-impact projects in Sabah, including the Sabah Oil and Gas Terminal, Sabah-Sarawak Gas Pipeline, Sipitang O&G Industrial Park as well as Petronas Chemicals Group Bhd’s ammonia and urea plants.

It is worth noting that pilgrim fund Lembaga Tabung Haji (LTH) is a common shareholder in both Coastal and Alam Maritim, albeit with non-controlling stakes.

LTH has 72.56 million shares in Alam Maritim, representing a 9.29% stake, while it has 18.2 million shares in Coastal, representing a 5.02% equity interest.

Alam Maritim has been seeing heightened buying interest since early December 2010. It ended trade higher last Friday to RM1.09 with 7.53 million shares done, while Coastal closed one sen lower to RM2.37 with 199,800 shares transacted.

This article appeared in The Edge Financial Daily, January 10, 2011.


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