DBS Bank;s proposed acquisition of a 14.2% stake in AFG from Temasek Holdings may be a left to right transaction, but industry observers believed that for AFG at least, it is more than that.
Market observers point out that should a working relationship happen following the entry of DBS into AFG, it will take time. At present, many agree that a 14.2% stake is not enough to bring about anything meaningful and it is highly likely that DBS will enter AFG with bigger plans than just that stake.
DBS would eventually consider an investment for which it can equity account.
DBS would have an effective 14.2% stake control of Alliance via its acquisition of Temasek’s Duxton Investments’ 49% stake in Vertical Theme Sdn Bhd. Market observers believe this could be a preclude to an offer for the remaining 51% in Vertical Theme owned by Langkah Bahagia, which would result in DBS ultimately owning a 29.1% stake.
As at March 2012, Duxton Investments and Langkah Bahagia, via Vertical Theme held 29.1% stake in AFG.
It is an open secret that DBS has been keen to enter Malaysia and has been looking around for options. In 2011, apart from the rumors of entry into Malaysia through AFG, there was talk that one of the options being explored was by acquiring RHB Bank via parties related to DBS and later merging RHB Bank with Alliance . That would have resulted in Temasek and RHB’s substantial shareholder- the EPF – holding stakes in the parent company of the merged banks. But the plan is understood to have shelved.
Monday, April 30, 2012
Saturday, April 28, 2012
Ramunia.. dated April 2012
The short term boost to Ramunia’s share price will help jump start the company’s proposed fundraising exercise, which is crucial to its bid to secure a rm170 million contract from oil major Shell. Sources say that Ramunia has received a notice for a LOL from Shell for fabrication works. However, the offer could be conditional upon Ramunia possessing its own fabrication yard. With this in the pipeline, Ramunia will have to expedite its acquisition of the fabrication yard in Pulau Indah from Oilfab Sdn Bhd, a 51% subsidiary of Oilcorp Bhd.
Thus the proposed rights issue is essential to raise cash. Ramunia has offered to acquire the Pulau Indah Integrated Fabrication Yard for rm84 million of which rm44 million will be paid in cash and rm40 million through a share issuance. Ramunia is currently leasing the yard from Pulau Indah.
Ramunia’s gearing is rather high at 0.98 times and the company still has long term borrowings of rm201 million after sizeable divestment. In addition, the company’s accumulated losses amounted to rm274 million as at Dec 31, 2011 even after disposing fabrication yard to Sime Darby for rm515 million cash in 2009.
Given the high gearing ratio, Ramunia needs to make a cash call as it might have difficulty raising borrowings. Ramunia was categorized as a PN17 firm in Feb 2010 because its shareholders’ funds on a consolidated basis was less than 50% of its issued and paid up share capital. Under its proposed regularization plan, Ramunia will undertake a two for five renounceable rights issue at 0.40 per share following the proposed change in par value to 25 sen from 50 sen per share. Bursa Malaysia approved the plan in Jan 2012.
Thus the proposed rights issue is essential to raise cash. Ramunia has offered to acquire the Pulau Indah Integrated Fabrication Yard for rm84 million of which rm44 million will be paid in cash and rm40 million through a share issuance. Ramunia is currently leasing the yard from Pulau Indah.
Ramunia’s gearing is rather high at 0.98 times and the company still has long term borrowings of rm201 million after sizeable divestment. In addition, the company’s accumulated losses amounted to rm274 million as at Dec 31, 2011 even after disposing fabrication yard to Sime Darby for rm515 million cash in 2009.
Given the high gearing ratio, Ramunia needs to make a cash call as it might have difficulty raising borrowings. Ramunia was categorized as a PN17 firm in Feb 2010 because its shareholders’ funds on a consolidated basis was less than 50% of its issued and paid up share capital. Under its proposed regularization plan, Ramunia will undertake a two for five renounceable rights issue at 0.40 per share following the proposed change in par value to 25 sen from 50 sen per share. Bursa Malaysia approved the plan in Jan 2012.
Friday, April 27, 2012
OldTown… dated April 2012
It has added 21 outlets to its café chain in 2011, bringing the total to 196, including those in Singapore , Indonesia and China .
For 2012, the company plants to add 20 to 30 new outlets locally, about half of which will be opened under its franchise scheme.
It is in the process of applying for halal certification for all 183 cafes in Malaysia , hopefully before end of 2012. It has secured certification for some 25 outlets to date (April 2012). The food processing centres and beverage manufacturing are already certified. If successful, this will significantly expand its target market, which at the moment is predominantly Chinese.
For overseas expansion, two or three new outlets are planned for Singapore and five to eight in Indonesia . A second outloet in Guangzhou , China opened in March 2012.
OldTown signed up a master franchisee for the Guanzhou and Macau provinces in 2011 A new food processing centre in Guanzhou, in which OldTown has a 19% stake is planned by end 2012. In addition, the company is exploring of appointing licensees for other provinces in China to further expand its footprint.
The café chain accounted for roughly 62% of Oldtown’s total revenue in 2011, with the balance coming from the beverage manufacturing arm. The later is also expected to grow in tandem for the foreseeable future.
While it will likely continue fare well, the higher growth potential should come from exports, which currently account for half of the company’s beverage manufacturing revenue.
OldTown has pushed into the mainland Chinese market, where the potential demand is much larger.
It has also set its sights on two other coffee drinking countries in the region, South Korea and Vietnam .
Its cash pile stood at rm73 million as at end 2011.
For 2012, the company plants to add 20 to 30 new outlets locally, about half of which will be opened under its franchise scheme.
It is in the process of applying for halal certification for all 183 cafes in Malaysia , hopefully before end of 2012. It has secured certification for some 25 outlets to date (April 2012). The food processing centres and beverage manufacturing are already certified. If successful, this will significantly expand its target market, which at the moment is predominantly Chinese.
For overseas expansion, two or three new outlets are planned for Singapore and five to eight in Indonesia . A second outloet in Guangzhou , China opened in March 2012.
OldTown signed up a master franchisee for the Guanzhou and Macau provinces in 2011 A new food processing centre in Guanzhou, in which OldTown has a 19% stake is planned by end 2012. In addition, the company is exploring of appointing licensees for other provinces in China to further expand its footprint.
The café chain accounted for roughly 62% of Oldtown’s total revenue in 2011, with the balance coming from the beverage manufacturing arm. The later is also expected to grow in tandem for the foreseeable future.
While it will likely continue fare well, the higher growth potential should come from exports, which currently account for half of the company’s beverage manufacturing revenue.
OldTown has pushed into the mainland Chinese market, where the potential demand is much larger.
It has also set its sights on two other coffee drinking countries in the region, South Korea and Vietnam .
Its cash pile stood at rm73 million as at end 2011.
Thursday, April 26, 2012
Mudajaya… dated April 2012
Its 26% unit RKM Poweregen Pte Ltd could face difficulties securing coal supply for its four 360MW coal fired power plants in India due to be operational by end 2012. This is despite media reports that Coal India Ltd recently agreed to sign fuel supply agreements with power producers in India including RKM Powergen. The subsequent three power plants will commence operations on a three month interval, with all four operational by 2014.
CIL’s board of directors had finally agreed to sign the FSA after PM Manmohan issued a directive to CIL to ensure an adequate supply of coal for the power supply. While the announcements by Manmohan may seem like a positive development as it shows the Indian government to resolve the issue, market observers view it as being deceptively positive. The FSAs have nearly wiped off all the liabilities that CIL will have to bear arising from the potential default in case of a coal supply shortfall. To further aggravate matters, the penalty clause would only be triggered after three years from the date of signing the FSAs, which is a disadvantage to power producers in India .
Concerned are that RKM Powergen would have to import coal from international market should local supply fall short. Another key risk is the imposition of a ceiling price on short term tariff rates.
Some quarters have raised concerns over a potential disruption in coal supply to the coal fired IPPs following the Indian government’s directives that CIL must sign fuel supply agreements with new power projects that come on stream by end 2012.
Under the FSAs, should CIL fail to supply 80% of the contracted coal to the new power stations, it would only have to pay 0.01% of the value of the shortfall as a penalty as opposed to the 10% stipulated previously. Te clause will come into effect three years after the signing of the FSAs.
Apart from the FSAs, CIL is also facing pressure from the opposition which claims that the huge discount attached to the priced of coal contracted to the IPPs translates into a loss of huge national income.
CIL, 90% owned by the government, is the largest coal producer in the world in terms of capacity and contributes to some 90% of coal production in India .
Mudajaya’s officials said that there is not need to be concerned about the huge provisions for Powergen as the project is on track to come on stream by end 2012. Based on its latest annual report, Mudajaya has invested some rm446 million in Powergen.
Apart from the coal supply from CIL, Powergen has a coalmine concession, which can supply up to 100 million tones of coal.
The stakes are too high for power projects like Powergen’s to fall through, more so when the Indian government has an interest in the IPPs.
The first phase of the Powergeb IPP project, which consists of one 360 MW plant, will be commissioned by end 2012. Cash flow will be recognized phase by phase in 2013 and will see the full impact by 2014.
Powergen entered into a 20 year Power Purchase Agreement with the Chhattisagarg State Electricity Board for the IPP project, commencing from the day the first power generating unit begins commercial operations.
It has also signed a PPA with FTC India Ltd for its second and third power generating units for a 12 year contracted supply of 700MW, round the clock electric power output.
The fourth unit will fall under merchant agreements, where power will be supplied at market rates under spot arrangements instead of a long term agreement.
Powergen would be a good source of cash flow for Mudajaya which has over rm4 billion worth on contracts in its order book.
Still concerns expressed by some are warranted due to the flip flop by India ’s administration.
CIL’s board of directors had finally agreed to sign the FSA after PM Manmohan issued a directive to CIL to ensure an adequate supply of coal for the power supply. While the announcements by Manmohan may seem like a positive development as it shows the Indian government to resolve the issue, market observers view it as being deceptively positive. The FSAs have nearly wiped off all the liabilities that CIL will have to bear arising from the potential default in case of a coal supply shortfall. To further aggravate matters, the penalty clause would only be triggered after three years from the date of signing the FSAs, which is a disadvantage to power producers in India .
Concerned are that RKM Powergen would have to import coal from international market should local supply fall short. Another key risk is the imposition of a ceiling price on short term tariff rates.
Some quarters have raised concerns over a potential disruption in coal supply to the coal fired IPPs following the Indian government’s directives that CIL must sign fuel supply agreements with new power projects that come on stream by end 2012.
Under the FSAs, should CIL fail to supply 80% of the contracted coal to the new power stations, it would only have to pay 0.01% of the value of the shortfall as a penalty as opposed to the 10% stipulated previously. Te clause will come into effect three years after the signing of the FSAs.
Apart from the FSAs, CIL is also facing pressure from the opposition which claims that the huge discount attached to the priced of coal contracted to the IPPs translates into a loss of huge national income.
CIL, 90% owned by the government, is the largest coal producer in the world in terms of capacity and contributes to some 90% of coal production in India .
Mudajaya’s officials said that there is not need to be concerned about the huge provisions for Powergen as the project is on track to come on stream by end 2012. Based on its latest annual report, Mudajaya has invested some rm446 million in Powergen.
Apart from the coal supply from CIL, Powergen has a coalmine concession, which can supply up to 100 million tones of coal.
The stakes are too high for power projects like Powergen’s to fall through, more so when the Indian government has an interest in the IPPs.
The first phase of the Powergeb IPP project, which consists of one 360 MW plant, will be commissioned by end 2012. Cash flow will be recognized phase by phase in 2013 and will see the full impact by 2014.
Powergen entered into a 20 year Power Purchase Agreement with the Chhattisagarg State Electricity Board for the IPP project, commencing from the day the first power generating unit begins commercial operations.
It has also signed a PPA with FTC India Ltd for its second and third power generating units for a 12 year contracted supply of 700MW, round the clock electric power output.
The fourth unit will fall under merchant agreements, where power will be supplied at market rates under spot arrangements instead of a long term agreement.
Powergen would be a good source of cash flow for Mudajaya which has over rm4 billion worth on contracts in its order book.
Still concerns expressed by some are warranted due to the flip flop by India ’s administration.
Tuesday, April 24, 2012
Monday, April 23, 2012
Affin… dated April 2012
One such is through its partnership with Hong Kong-based Bank of East Asia Ltd (BEA) which Affin is banking on as the route into China ’s unexplored Islamic banking landscape.
However, talks about venturing into China is still in its preliminary stage and Affin believes that it should go through the process of engaging the Chinese authorities before further commenting on the matter.
That said, the potential for spreading its wings abroad is there. With a connection with BEA, Affin can join forces to leverage on its global reach and experience.
BEA first surfaced as a substantial shareholder in Affin in June 2007. The bank started actively picking up shares in Affin in the middle of 2009 and is now the second largest stakeholder with a 23.52% block.
In August 2010, Affin Bank’s parent company Affin Holdings Bhd (AHB) signed a memorandum of understanding with BEA establishing a strategic partnership to jointly develop their business potential in mainland China , Hong Kong , Malaysia and other key markets where they both operate.
Affin’s interest in introducing Islamic banking to the China market has been on the table since and BEA has been playing a role in expediting talks with the China Banking Regulatory Commission.
Affin has a mind to market Islamic banking products in the Muslim-majority population areas in north-western China where BEA has a branch in Urumqi .
The strategic alliance will place both Affin and BEA in a better position in many important Asian markets. The areas where both banking group could explore include treasury, Islamic banking, investment banking and asset management.
Alliance Research banking analyst Cheah King Yoong says the partnership will be beneficial to both parties. The strategic partnership could be fruitful for both sides is Affin leveraging on BEA’s extensive network and expertise in the region to launch its Islamic products.
While he says there is not much information available at the moment, BEA has been interested to increase its stake in Affin. Therefore, the potential for BEA to increase its stake in AHB is imminent, in view of further liberalisation in the domestic banking sector by Bank Negara in December 2011 with the unveiling of the Financial Sector Blue Print.
Around South-East Asia , Affin has also expressed keen interest in Indonesian bank PT Bank Ina Perdana, which if acquired, Affin intends as a full-fledged Islamic bank. The group is now (April 2012) waiting for the Indonesian central bank, Bank Sentral Republik Indonesia’s formal agreement to allow Affin to hold at least a 51% stake in the small bank. Affin would not be interested in acquiring should it end up holding less than 50% stake.
Other than Indonesia , Affin also hopes to establish banking operations in recently democratised Myanmar but such ambitions depend on the Government’s relations with Myanmar .
BEA, incorporated in Hong Kong in 1918, provides comprehensive commercial and retail banking services. It is listed on the Hong Kong Stock Exchange and is one of the constituent stocks of the Hang Seng Index. As the largest independent local bank in Hong Kong , it has total consolidated assets amounting to HK$611.4bil (RM241.44bil) as at Dec 31, 2011. The bank also operates one of the largest banking networks in Hong Kong , with more than 150 branches and financial centres throughout the city.
BEA entered the mainland China market in 1920 when it first opened a branch in Shanghai . It is the largest foreign bank in China with more than 100 outlets in major urban centres the country over.
In other parts of the world, BEA has presence in North America, the UK , Singapore and Malaysia . It has branches in Los Angeles and New York as well as a New York-based subsidiary, Bank of East Asia (US) and North America .
As a gauge of the banking group’s size, BEA operates more than 220 outlets and employs over 12,000 people worldwide.
In 2007, it was one of the first foreign banks to receive approval from the China Banking Regulatory Commission to establish a locally-incorporated bank in mainland China , the Bank of East Asia (China) Ltd, which offers a full range of banking and financial services.
BEA is 15.09%-owned by Tan Sri Quek Leng Chan through Guoco Group Ltd.
Saturday, April 21, 2012
Disposed some P.I.E shares
Disposed some P.I.E shares, still hold some of it for further rise~
hehe~
Thursday, April 19, 2012
LBS ... dated April 2012
Sources say LBS will ink a deal soon to dispose of its 50% stake in two joint ventures in China , one involving a golf course and the other a proposed 197 acre property development in Zhuhai.
LBS’ total borrowings as at Dec 31, 2011 stood at rm480 million against total shareholdings’ funds of rm509 million. It had cash and bank balances of rm65.26 million as at Dec 31, 2011 and was in a negative cash position with rm33.02 million net cash used in operating activities.
Although it is not known how much LBS’ 50% stakes in its China joint ventures will be valued at, Lakewood Gold Club is carried in its books at a net value of rm195 million based on a valuation carried out in 2008.
While LBS could book a substantial one off gain from the disposal of its China joint ventures, market observers do not expect a hefty dividend payout as the company could use the proceeds to pare down debt or grow its domestic landbank.
It had locked in sales of rm280 million in 1QFY2012 with unbilled sales standing of rm693 million as at March 31, 2011.
Property development has been LBS’ main earnings generator and only profitable division over the last few years.
Wednesday, April 18, 2012
OldTown… dated April 2012
Its key drivers are going strong. The main drivers are the strong double-digit growth rate in the fast-moving consumer goods (FMCG) segment coupled with a moderate growth in the company's caf chains. The FMCG growth expects to be boosted by the continuation of likely rising market shares in Malaysia , Hong Kong and Singapore this year.
It will also be boosted by penetration into new markets such as South Korea and Vietnam . Meanwhile, the management's vision of opening more caf outlets domestically and regionally should be more than adequate to sustain the moderate growth rate in the segment that are conservatively forecasting for now (April 2012).
If the economic condition normalises with China continuing its growth trajectory, there could be more upsides to FY13.
Foreign and local funds have started to increase their stakes in the stock recently at 18.6% as at Feb 23, 2012.
The promoters (management and major shareholders) will no longer sell their shares in the open market. This could be a positive indication of the company's future earnings growth.
Monday, April 16, 2012
YTL Power/YTL Comm … dated April 2012
The Ministry of Education’s partner in the venture, YTL Comm Sdn Bhd, started tolling out the virtual learning environment system in the schools in March 2012.
Sources say while YTL Comms is forking out the money for Capex, the company is expected to get rm300 million per year from the government for all the 10000 schools nationwide for provision and maintenance of the system. The 1Bestarinet contract for the first five years is worth some rm1.5 billion, with an option for another 10 years, making the entire project worth a potential rm4.5 billion.
It is expected to be under a lease agreement, where the government will lease the school to YTL Comms, which will install the service and maintain it. Thus, there is a possibility that a fixed cost is paid to YTL Comms regardless of the size of the school.
What this means is that even if not all of the bandwidth is used in the schools, YTL Comms will still receive a certain amount.
Of YTL Comms’ 2500 base stations, 1600 are located in schools will provide YES 4G service and was aiming for 4000 base stations in total by end of year with a capex of rm2.5 billion to cover 80% of the population by end 2012.
An industry observer says that globally, projects similar to 1Bestarinet offer three revenue streams.
In YTL Comms, having its base stations in schools also means that its YES 4G network would have a wider reach, which would then help in growing its subscribers base.
If YTL Comms manages to turn around in the next couple of years, it would be a relief to shareholders of YTL Power, who have seen their dividend payments from the company drop as funds are used to grow YES.
YTL Comms is loss making. In FY2011 ended Dec the latter reported a net loss of rm197 million while revenue stood at rm30.6 million.
YTL Comms has yet to come up with an official statement on its role in the 1bestarinet project.
The 1Bestarinet project will certainly serve as a steady revenue stream to YTL Comms as it works to establish YES.
On another front, there is still no sign of YTL Comms’ IPTV service hitting the market. The company had said it was looking to offer the service by end 2011. Note that its US partner 8in the venture – Sezmi Corp – has run into financial difficulty.
The question is, will this delay YTL Comms rollout of the hybrid TV service or force the company to go back to the drawing board.
Valuations ….
YTL Power is one of the 30 component stocks of the FBM KLCI and has been lagging its peers in the past 15 months.
It has a cash pile of rm8.68 billion against rm15.82 billion of borrowings and has been trading in the range of rm1.90 and rm1.75 unlike most of the KLCI counters which have headed higher and lifted the benchmark. Shrinking dividend payments is one factor that makes YTL Power less appealing and concerns over the huge capex requirement of its 4G business.
However, there are potential catalysts that could spark interest in YTL Power. And the 4G business could be a boon to its future earnings instead of a burden. Its 60% owned YTL COmmns is said to have won the 1Bestarinet smart school project.
Apart from the 1Bestarinet smart school project, other catalyst to prompt to re rating of the stock is the upcoming 4500 MW power plant up cycle in Malaysia . The bidding process for the 4500 MW power generation started recently with the 1000 MW to 1400 MW gas fired Prai power plant in Penang.
YTL Power together with its Japanese partner Marubeni Corp is among nine bidders shortlisted for the Prai Power plant project. YTL Power will also vie for the Pasir Gudang tender given the possibilities of sharing infra with its existing power plant on site. It could also be awarded a 700 MW power plant project. Currently it is operating two power plants.
Its lackluster share price performance was mainly due to the group has been trimming its dividend payment. The group is cash hoard for M&As opportunities in expectation of an upcoming downturn. However, others point out the skepticism about the fast cash burning in the telcoms business.
Sunday, April 15, 2012
Genting Malaysia/Genting SP (RWS) March 2012
Genting Singapore has received the Singapore gambling regulator's nod to operate junkets at Resorts World Singapore (RWS).
The Casino Regulatory Authority (CRA) gave its approval to two Malaysian junket promoters Huang Yu Kiung and Low Chong Aun to run junkets aimed at foreign high rollers. The promoters, who were endorsed by RWS, can start organising junkets immediately. The licence is valid for one year and has to be renewed annually.
Officially referred to as “international market agents,” the promoters can target the international market but not Singaporeans or permanent residents. Twelve applicants were rejected, although the CRA said it was evaluating more applications.
This gives RWS a headstart over its competitor, Marina Bay Sands (MBS), which has yet to endorse any junket operators. The move would help address twin concerns at RWS bad debt problems and declining VIP arrivals.
Junket approvals could open up a new stream of VIP players for both RWS and MBS, giving the Singapore VIP gaming market the much-needed ammo to grow.
The junkets would be positive for RWS in terms of its credit risk. Now Genting doesn't have to extend so much credit to the high rollers because the junket operators typically offer their own credit.
RWS is operated by Genting Singapore , which is 47.2%-owned by Genting.
Saturday, April 14, 2012
Deleum Bhd March 2012
A provider of oilfield equipment and services to the upstream sector of the oil and gas industry, is partnering Petronas Carigali Sdn Bhd to form a global patent for a breakthrough product that will greatly improve oil extraction rates.
The product will be able to dissolve the layer of wax that clogs the pipes that extract the oil from ground and transport it. Towards this end, Carigali is prepared to undertake a joint venture for the commercial production of the product.
The joint venture will be the global patent holder of this product, and it expects the product to be used by most oil majors.
The sources say the new product has been tested on a pilot oilfield off the coast of Sabah and Carigali is prepared to secure the patent to monetize the opportunity.
Its net assets per share stood at rm1.20 It had rm6.96 million in cash and rm26.82 million in borrowings.
The company indicated in May 2011 that it was tendering for rm200 million worth of jobs in the inventory, services and equipment business. Its portfolio comprised rm1 billion worth projects which will run up to 2016.
The product will be able to dissolve the layer of wax that clogs the pipes that extract the oil from ground and transport it. Towards this end, Carigali is prepared to undertake a joint venture for the commercial production of the product.
The joint venture will be the global patent holder of this product, and it expects the product to be used by most oil majors.
The sources say the new product has been tested on a pilot oilfield off the coast of Sabah and Carigali is prepared to secure the patent to monetize the opportunity.
Its net assets per share stood at rm1.20 It had rm6.96 million in cash and rm26.82 million in borrowings.
The company indicated in May 2011 that it was tendering for rm200 million worth of jobs in the inventory, services and equipment business. Its portfolio comprised rm1 billion worth projects which will run up to 2016.
Thursday, April 12, 2012
MEGB April 2012
Its group chief executive officer Datuk Seri Edmund Santhara bought more shares in his beleaguered company on 22 March 2012, forking out some RM7.7mil to mop up 7 million shares at a price of RM1.10. This acquisition raised his shareholding in the company to 23.81% or 97.6 million shares.
The rationale for his acquisition isn't yet clear. Masterskill's other substantial shareholder Siva Kumar M. Jeyapalan was just a passive shareholder, and was not aware of any upcoming plans for the company.
Siva had on Oct 5 2011 emerged as a subtantial shareholder of the education group after acquiring 41.2 million shares or a 10.05% stake in the company at approximately RM1.10 a share.
It had been rumoured earlier that Masterkill could be a takeover target by Khazanah Nasional Bhd or Ekuiti Nasional Bhd. Industry observers said that pricing was likely an issue preventing the buyout deals from materialising so far. But market observers would not rule out a potential deal involving Masterskill, perhaps one that did not take the strict privatisation model.
Masterskill still had an on-going business as well as fixed assets in the form of its campuses. Presently, its main campus is in Cheras, and it has five other smaller campuses in Johor Baru, Ipoh , Kota Baru, Kota Kinabalu and Kuching. Masterskill is also in the process of building its flagship campus in Bangi, Selangor, where it has received RM250mil in financing for the first phase of this project.
Aside from Santhara and Siva, another major shareholder of the company is private equity firm Crescent Point Investment Holdings Ltd with 21.5%.
It recorded a net loss of RM1.57mil for its fourth quarter to Dec 31, 2011 from a previous net profit of RM26.85mil on the back of a 38.81% drop in revenue to RM49.5mil.
For the full year (FY11), net profit was down almost three fold to RM38.14mil from RM102.14mil in FY10 on the back of a 20.77% drop in revenue to RM250.17mil.
The fourth-quarter results were dragged down by weak student intake and higher-than-expected staff costs. For the full year, operating margins almost halved to 26%, partly due to a surge in depreciation.
The 21% decline in full-year revenue resulted mainly from a 35% drop in student intake to 3,500, of which only 250 students enrolled in the second half of the year. The total active students in 2011 stood at 14,000.
The rationale for his acquisition isn't yet clear. Masterskill's other substantial shareholder Siva Kumar M. Jeyapalan was just a passive shareholder, and was not aware of any upcoming plans for the company.
Siva had on Oct 5 2011 emerged as a subtantial shareholder of the education group after acquiring 41.2 million shares or a 10.05% stake in the company at approximately RM1.10 a share.
It had been rumoured earlier that Masterkill could be a takeover target by Khazanah Nasional Bhd or Ekuiti Nasional Bhd. Industry observers said that pricing was likely an issue preventing the buyout deals from materialising so far. But market observers would not rule out a potential deal involving Masterskill, perhaps one that did not take the strict privatisation model.
Masterskill still had an on-going business as well as fixed assets in the form of its campuses. Presently, its main campus is in Cheras, and it has five other smaller campuses in Johor Baru, Ipoh , Kota Baru, Kota Kinabalu and Kuching. Masterskill is also in the process of building its flagship campus in Bangi, Selangor, where it has received RM250mil in financing for the first phase of this project.
Aside from Santhara and Siva, another major shareholder of the company is private equity firm Crescent Point Investment Holdings Ltd with 21.5%.
It recorded a net loss of RM1.57mil for its fourth quarter to Dec 31, 2011 from a previous net profit of RM26.85mil on the back of a 38.81% drop in revenue to RM49.5mil.
For the full year (FY11), net profit was down almost three fold to RM38.14mil from RM102.14mil in FY10 on the back of a 20.77% drop in revenue to RM250.17mil.
The fourth-quarter results were dragged down by weak student intake and higher-than-expected staff costs. For the full year, operating margins almost halved to 26%, partly due to a surge in depreciation.
The 21% decline in full-year revenue resulted mainly from a 35% drop in student intake to 3,500, of which only 250 students enrolled in the second half of the year. The total active students in 2011 stood at 14,000.
Wednesday, April 11, 2012
mTouche April 2012
Datuk Kamarudin Meranun, co-founder of doubled his stake to 11.53% in smallish mTouche Technology Bhd.
At the same time, mTouche chief financial officer Tan Wee Meng, the third largest shareholder and co-founder of the mobile content provider, reduced his stake from 15.55% to 8.64%.
Eugene Goh, Tan's partner and the chief executive officer of mTouche has also been trimming his stake in the firm to the current 26%. He remains the current largest shareholder, after OSK Capital Partners Sdn Bhd which has a 21.27% stake.
Ng Joo How, meanwhile, the fourth-largest shareholder and a company director, had ceased to be a shareholder of the company.
In what could be early signs of a total change in the company's shareholding and organisation structure, a lot of questions are being raised, chief among these are, why would Kamarudin buy into a firm with a market capitalisation of only RM100mil and why are the company's founders selling off?
Earlier, it was reported that Goh was being pressured to settle a total of RM20mil that he owed OSK Capital Partners. The money was taken to fund a previous rights issue.
A few years ago, mTouche did a major write-off on its investment in GMO Ltd, which was listed on the Alternative Investment Market of the London Stock Exchange in 2006 and subsequently delisted on Dec 30, 2009. GMO's other major shareholders were Green Packet Bhd and OSK Ventures International Bhd.
In its last quarter of its financial year ended Dec 31, 2009, mTouche made an impairment charge of about RM45.2mil mainly related to its associate company GMO Ltd. That impairment charge was reportedly the last of such provisions that had been taking its toll on the company's earnings.
Due to that major write off, Goh and Tan had committed to pumping in fresh capital into mTouche, hence had borrowed RM20mil from OSK Capital. It is understood that they have been paying interest on this amount for the last few years.
According to sources, now there is a pressing need to settle the loan presumably due to the impending merger between OSK Holdings Bhd-RHB Capital Bhd.
Initially, this was to be done via an arrangement which would see Goh sell off some of his shares in the market to help settle the loan. A takeover of his company was never in the plan, in Goh's view. However, Goh has been made to understand that a takeover is now on the cards. He is now being pressured to sell off his remaining block of shares to a selected group of people to settle his loan, sources say.
It is not immediately known the reason for this nor why there does not seem to be any other options available. Needless to say should this happen, Goh who is also executive chairman of mTouche will lose his control over the company.
Sources say the plan is for the new shareholders, which may include Kamarudin to use mTouche as a platform to obtain a Government project related to mTouche's expertise.
mTouche made a net loss of RM4.7mil on revenue of RM43.7mil for its financial year ended Dec 31, 2011 and had cash and balances of RM21.1mil at Dec 31 2011. The company in 2010, fresh after making its last major impairment charges, said that it would continue to expand aggressively regionally.
Singaporean Goh is the founder of mTouche Pte Ltd (MPL) and a major contributor to the setting-up of MPL's pioneering operations in Singapore.Under Goh, mTouche has grown and expanded into other South-East Asia markets such as Malaysia , Indonesia and Thailand with local offices set up in each one of these countries.
The group is one of the mobile technology platform service providers in the world to have direct server connections to all mobile network operators in Singapore , Malaysia , Indonesia and Thailand .
In 2010, it held the number one position locally, in the mobile pure-play arena, with more than half a million subscribers subscribing to its mobile device-based social networking service called JuzFrens.
At the same time, mTouche chief financial officer Tan Wee Meng, the third largest shareholder and co-founder of the mobile content provider, reduced his stake from 15.55% to 8.64%.
Eugene Goh, Tan's partner and the chief executive officer of mTouche has also been trimming his stake in the firm to the current 26%. He remains the current largest shareholder, after OSK Capital Partners Sdn Bhd which has a 21.27% stake.
Ng Joo How, meanwhile, the fourth-largest shareholder and a company director, had ceased to be a shareholder of the company.
In what could be early signs of a total change in the company's shareholding and organisation structure, a lot of questions are being raised, chief among these are, why would Kamarudin buy into a firm with a market capitalisation of only RM100mil and why are the company's founders selling off?
Earlier, it was reported that Goh was being pressured to settle a total of RM20mil that he owed OSK Capital Partners. The money was taken to fund a previous rights issue.
A few years ago, mTouche did a major write-off on its investment in GMO Ltd, which was listed on the Alternative Investment Market of the London Stock Exchange in 2006 and subsequently delisted on Dec 30, 2009. GMO's other major shareholders were Green Packet Bhd and OSK Ventures International Bhd.
In its last quarter of its financial year ended Dec 31, 2009, mTouche made an impairment charge of about RM45.2mil mainly related to its associate company GMO Ltd. That impairment charge was reportedly the last of such provisions that had been taking its toll on the company's earnings.
Due to that major write off, Goh and Tan had committed to pumping in fresh capital into mTouche, hence had borrowed RM20mil from OSK Capital. It is understood that they have been paying interest on this amount for the last few years.
According to sources, now there is a pressing need to settle the loan presumably due to the impending merger between OSK Holdings Bhd-RHB Capital Bhd.
Initially, this was to be done via an arrangement which would see Goh sell off some of his shares in the market to help settle the loan. A takeover of his company was never in the plan, in Goh's view. However, Goh has been made to understand that a takeover is now on the cards. He is now being pressured to sell off his remaining block of shares to a selected group of people to settle his loan, sources say.
It is not immediately known the reason for this nor why there does not seem to be any other options available. Needless to say should this happen, Goh who is also executive chairman of mTouche will lose his control over the company.
Sources say the plan is for the new shareholders, which may include Kamarudin to use mTouche as a platform to obtain a Government project related to mTouche's expertise.
mTouche made a net loss of RM4.7mil on revenue of RM43.7mil for its financial year ended Dec 31, 2011 and had cash and balances of RM21.1mil at Dec 31 2011. The company in 2010, fresh after making its last major impairment charges, said that it would continue to expand aggressively regionally.
Singaporean Goh is the founder of mTouche Pte Ltd (MPL) and a major contributor to the setting-up of MPL's pioneering operations in Singapore.Under Goh, mTouche has grown and expanded into other South-East Asia markets such as Malaysia , Indonesia and Thailand with local offices set up in each one of these countries.
The group is one of the mobile technology platform service providers in the world to have direct server connections to all mobile network operators in Singapore , Malaysia , Indonesia and Thailand .
In 2010, it held the number one position locally, in the mobile pure-play arena, with more than half a million subscribers subscribing to its mobile device-based social networking service called JuzFrens.
Tuesday, April 10, 2012
MRCB … dated March 2012
Sources say it is to be compensated by the government following changes to the terms under which it can collect toll on the EDL in Johor. The amount is to be worked out, but it will compensate MRCB for a loss in come due to changes to the terms of the concession.
Originally, all vehicles with exception of motorcycles, using the Causeway were to pay toll on the EDL. It is learnt that the governments is now looking at charging a levy on all foreign registered vehicles going into Singapore using the highway.
The EDL, which leads to CIQ complex and onwards to the Causeway that connects Johor Baru in Singapore , is scheduled to be opened to traffic for a trial period of one month from April 1, 2012.
Najib announcement related to the use of EDL however, has touched a raw nerve – bond holders are concerned about MRCB’s abilities to meet debt repayment obligations if the terms of the concession are altered.
The announcement is different from the terms of the concession agreement. Bond holders subscribed for the papers issued by MRCB sponsored SPV on the understanding that all vehicles, except motorcycles that use the Causeway will have to pay toll on the EDL.
Bond holders subscribed for two tranches of Islamic debt papers issued by the SPV, known as MRCB Southern Link Bhd, which amounted to rm1.044 billion. RAM Ratings has already placed the paper with tenured up to 2027 on negative watch.
The negative Rating Watch reflects the uncertainties pertaining to the EDL’s ability to commence tolling operations, its eventual tolling mechanism and traffic volume. These factors could have a negative bearing on the company’s cash flow profile and debt servicing ability throughout the tenure of the sukuk.
The first debt obligation for MRCB Southern Link is due in Dec 2012.
Originally, all vehicles with exception of motorcycles, using the Causeway were to pay toll on the EDL. It is learnt that the governments is now looking at charging a levy on all foreign registered vehicles going into Singapore using the highway.
The EDL, which leads to CIQ complex and onwards to the Causeway that connects Johor Baru in Singapore , is scheduled to be opened to traffic for a trial period of one month from April 1, 2012.
Najib announcement related to the use of EDL however, has touched a raw nerve – bond holders are concerned about MRCB’s abilities to meet debt repayment obligations if the terms of the concession are altered.
The announcement is different from the terms of the concession agreement. Bond holders subscribed for the papers issued by MRCB sponsored SPV on the understanding that all vehicles, except motorcycles that use the Causeway will have to pay toll on the EDL.
Bond holders subscribed for two tranches of Islamic debt papers issued by the SPV, known as MRCB Southern Link Bhd, which amounted to rm1.044 billion. RAM Ratings has already placed the paper with tenured up to 2027 on negative watch.
The negative Rating Watch reflects the uncertainties pertaining to the EDL’s ability to commence tolling operations, its eventual tolling mechanism and traffic volume. These factors could have a negative bearing on the company’s cash flow profile and debt servicing ability throughout the tenure of the sukuk.
The first debt obligation for MRCB Southern Link is due in Dec 2012.
Sunday, April 8, 2012
Muhibbah… dated March 2012
Switzerland based Mercuria Energy Group Ltd is said to be partnering CIMB Group to revive the APH bunkering island project off Tanjung Bin in Johor.
It is learnt that Mercuria will establish a joint venture with a well connected local firm to invest in the APH project, which has stalked for the past one year. What APH lacks is a firm partner that can drive operations and be the off taker. Mercuria will fit the role.
Mercuria is presnet in various energy markets.
There have been other suitors for the APH project, including PTT Thailand which was prepared to be the off taker and to lease the facilities on a long term basis. But nothing has materialized so far. PTT Thailand was keen when KIC approached it previously. But things may have changed which resulted in the entry of Mercuria.
The main shareholder in APH is KIC Oil and Gas Sdn Bhd with a 90% stake. Another 10% is held by Trek Sdn Bhd, a company linked to UMNO. KIC Oil and Gas appointed appointed ZAQ as the managing contractor. Muhibbah along with several other subcontractors, dealt with AHP through ZAQ.
A firm off taker agreement would help enhance the financial feasibility of the project.
To recap, CIMB in Dec 2011 sought a court order to appoint receivers and managers to restructure APH. This followed an increase in the construction cost. The bank had provided a rm1.4 billion facility via a three year bridging loan for the project, of which rm840 million has been drawn down. The amount was used to complete some 60% of the work.
Funding for the project stopped in late 2010. It is learnt that APH is seeking another rm1 billion to complete the job, something that CIMB is reluctant to provide, leading the appointment of receivers and managers.
Cost overruns led to a delay in payments due to one of the major subcontractors, Muhibbah Engineering. Muhibbag was roped in at the start with an rm820 million contract to build a storage hub for oil with bunkering facilities on the island.
Muhibbah announced in late Feb 2012 that it had filed a cuit against the promoter APH, and ZAQ for rm381 million in overdue claims.
CIMB and Muhibbah are said to be looking to convert the amounts owed to them into equity. This would allow subcontractors like Muhibbah to assume a bigger role in the project. However, it is believed that the other creditors of APH are not keen on a debt to equity swap. ZAQ is said to be not in favor of the move as its stake would be too small and not meaningful.
In order for the restructuring to take place, CIMB needs 75% support from APH’s direct creditors.
One option is for a new shareholder to come in and inject fresh funds.
Meanwhile in Muhibbah’s books is an amount of rm381 million due from APH. Muhibbah is keen on debt to equity swap as it would allow the company to play a bigger role in APH. This would give Muhibbah cheap exposure as an oil and gas storage terminal operator. Other players have had to invest much more to be able to achieve something similar.
Muhibbah will joint the rank of Dialog and other oil and gas service players if it manages to get a stake in APH.
Beyond the bunkering project, Muhibbah said it had secured an order book of rm3.05 billion with jobs lined up to 2014.
It is learnt that Mercuria will establish a joint venture with a well connected local firm to invest in the APH project, which has stalked for the past one year. What APH lacks is a firm partner that can drive operations and be the off taker. Mercuria will fit the role.
Mercuria is presnet in various energy markets.
There have been other suitors for the APH project, including PTT Thailand which was prepared to be the off taker and to lease the facilities on a long term basis. But nothing has materialized so far. PTT Thailand was keen when KIC approached it previously. But things may have changed which resulted in the entry of Mercuria.
The main shareholder in APH is KIC Oil and Gas Sdn Bhd with a 90% stake. Another 10% is held by Trek Sdn Bhd, a company linked to UMNO. KIC Oil and Gas appointed appointed ZAQ as the managing contractor. Muhibbah along with several other subcontractors, dealt with AHP through ZAQ.
A firm off taker agreement would help enhance the financial feasibility of the project.
To recap, CIMB in Dec 2011 sought a court order to appoint receivers and managers to restructure APH. This followed an increase in the construction cost. The bank had provided a rm1.4 billion facility via a three year bridging loan for the project, of which rm840 million has been drawn down. The amount was used to complete some 60% of the work.
Funding for the project stopped in late 2010. It is learnt that APH is seeking another rm1 billion to complete the job, something that CIMB is reluctant to provide, leading the appointment of receivers and managers.
Cost overruns led to a delay in payments due to one of the major subcontractors, Muhibbah Engineering. Muhibbag was roped in at the start with an rm820 million contract to build a storage hub for oil with bunkering facilities on the island.
Muhibbah announced in late Feb 2012 that it had filed a cuit against the promoter APH, and ZAQ for rm381 million in overdue claims.
CIMB and Muhibbah are said to be looking to convert the amounts owed to them into equity. This would allow subcontractors like Muhibbah to assume a bigger role in the project. However, it is believed that the other creditors of APH are not keen on a debt to equity swap. ZAQ is said to be not in favor of the move as its stake would be too small and not meaningful.
In order for the restructuring to take place, CIMB needs 75% support from APH’s direct creditors.
One option is for a new shareholder to come in and inject fresh funds.
Meanwhile in Muhibbah’s books is an amount of rm381 million due from APH. Muhibbah is keen on debt to equity swap as it would allow the company to play a bigger role in APH. This would give Muhibbah cheap exposure as an oil and gas storage terminal operator. Other players have had to invest much more to be able to achieve something similar.
Muhibbah will joint the rank of Dialog and other oil and gas service players if it manages to get a stake in APH.
Beyond the bunkering project, Muhibbah said it had secured an order book of rm3.05 billion with jobs lined up to 2014.
Saturday, April 7, 2012
Takaful
It stands to gain from a new ruling in Indonesia that will see pure takaful players grabbing a bigger share of the insurance market.
The Indonesia ’s regulator is in the midst of removing Islamic Windows or the sale of takaful products by insurers that are not licensed as takaful operators. This will effectively benefit standalone takaful companies, of which there are not more than four in Indonesia and one of which is Takaful Malaysia.
Although Takaful Malaysia has been the largest standalone takaful company in Indoensia, this is set to change with the new ruling, which is being implemented.
At the moment, Indonesia contributes less than 5% to Takaful Malaysia’s revenue and the company hopes to grow this to 50% in four years.
Aside from the new ruling, Indonesia ’s rapid growth represents a strong upside for its takaful sector. Demand for Islamic products is set to rise along with the country’s standard of living and purchasing power, as large inflows of foreign direct investment will create more employment opportunities.
The Indonesia ’s regulator is in the midst of removing Islamic Windows or the sale of takaful products by insurers that are not licensed as takaful operators. This will effectively benefit standalone takaful companies, of which there are not more than four in Indonesia and one of which is Takaful Malaysia.
Although Takaful Malaysia has been the largest standalone takaful company in Indoensia, this is set to change with the new ruling, which is being implemented.
At the moment, Indonesia contributes less than 5% to Takaful Malaysia’s revenue and the company hopes to grow this to 50% in four years.
Aside from the new ruling, Indonesia ’s rapid growth represents a strong upside for its takaful sector. Demand for Islamic products is set to rise along with the country’s standard of living and purchasing power, as large inflows of foreign direct investment will create more employment opportunities.
Sunday, April 1, 2012
Wah Seong April 2012
Sources say it is believed to have secured a contract from Petronas Carigali Sdn Bhd to coat about rm90km of gas pipeline in Turkmentistan. The pipe coating deal is an extension of an existing job that Wah Seong secured in Turkmenistan in 2008.
Coating continues to be Wah Seong’s core business, it is also into the manufacturer of pipes for the oil and gas industry.
Petronas will continue to keep Wah Seong busy with its five year capex of rm300 billion on oil and gas. Wah Seong will be a beneficiary of Petronas’ plan to replace its ageing facilities, given that 60% of the Petronas’ major oil producing fields in Malaysia are around 26 years oil. And there is also vast opportunity in the pipeline rehabilitation programme, given that 800km pipelines are over 30 years and would need to be replaced soon.
Petronas’ RM15 billion North Malay Basin project is another that might require Wah Seong’s pipe coating skills. This involves the construction of a 200km long pipeline to transfer gas from nine fields to Kerteh in Terengannu. The project is expected to rolled out soon, given Petronas ambitious timeline of first production by 2013.
Meanwhile, the Gulf of Mexico would be the next growth frontier for the company with the expected commissioning of its two plants in Louisiana , United States , by the second half of 2012. These plants would be operated via a joint-venture which would springboard Wah Seong's entry into the Gulf of Mexico region by leveraging on its partner’s infrastructure.
Australia would remain a key driver for the company as it would offer huge potential due to large number of liquefied natural gas projects.
Meanwhile, Wah Seong is looking for potential mergers and acquisitions to boost the contribution for its non oil and has division which is part of the initial public offering for its de-merger exercise to unlock value for the company.
As at Dec 31, 2011, its order book stood at rm1.2 billion.
Meanwhile its planned venture into oil palm cultivation in the Republic of Congo is considered risky as the company has no experience in this field. It is also the first listed company to do so in the republic.
The concerned is due to sociopolitical risks in the country. Market observers do not see any catalysts in the short term coming from this venture as it will take some time before Wasco can reap the harvest. If it succeeds in this, the oil palm venture will be good recurring income for the long term.
On Feb 3, 2012, it had entered into an agreement with Silvermark Resources Inc and Ginat Dragon Group Ltd to subscribe for up to 51% equity interest in Atama Resources Inc (ARI) for US$25 million. Silvermark and Giant will hold the remaining 49%.
ARI has a 30 year oil oil palm plantation concession agreement with the government of the Republic of Congo . Under the concession, ARI has the right to occupy 470000 ha to develop oil plam plantations and compexes.
At this juncture, 180000ha or 38% of the concession land has been identified as highly suitable for plantation. ARI will begin planting by 2QFY2013 and the development of the 180000ha is expected to be completed in 10 phases over 15 years.
Wasco will raise half the rm75 million share subscription in ARI via bank borrowings while the rest will com from internally generated funds. As at end Sept 30, 2011 Wasco had rm515 million in cash and rm726 million in borrowings. It has a net gearing of 0.2 times based on its shareholders’ funds of rm987 million.
Although the bank borrowings portion for the share subscription in ARI will only raise Wasco’s gearing to 0.25 times, the venture might become a financial burden in the future. Estimate that it will cost between US$4000 – US$6000 per hectare to develop oil palm to maturity.
Based on the initial 180000ha that have been identified and the US$4000 per hectare development cost, the capex is estimated to be at least US$48 million per year. Wasco will also need to pay RM15 per hectare to the government.
Once ARI becomes a 51% subsidiary of Wasco, its borrowings will need to be capitalized or consolidated in the latter’s balance sheet to develop oil palm plantations. This will undermine Wasco’s ability to seek new borrowings for its oil and gas ventures. This will become a burden unless it manages to hive off its oil and gas business soon, which is currently its bread and butter.
The venture will have a long gestation period. Wasco and its partners are looking at an unplanted area, which may take about five years to see first harvest.
The foray could be a move by management to seek recurring income after hiving off the oil and gas segment. Currently, all of Wasco’s six business divisions are parked under its wholly owned subsidiary Wasco Energy Ltd (WEL).
Under thr proposed demerger exercise, the non oil and gas pipe manufacturing, renewable energy and trading businesses will be parked under Wasco, while WEL will run the oil and gas business. The demerger exercise had been slated for mid 2011, but it was postponed. However, with the new venture, Wasco may be able to complete the demerger soon as the share subscription in ARI is expected to be completed in 2012.
Once Wasco completes the share subscription, it will appoint four of the eight directors in ARI. A director of IGB is also a director in ARI. IGB’s group MD Robert Tan is also the chairman of Wasco, and his family holds a 40% direct and indirect stake in the latter.
Coating continues to be Wah Seong’s core business, it is also into the manufacturer of pipes for the oil and gas industry.
Petronas will continue to keep Wah Seong busy with its five year capex of rm300 billion on oil and gas. Wah Seong will be a beneficiary of Petronas’ plan to replace its ageing facilities, given that 60% of the Petronas’ major oil producing fields in Malaysia are around 26 years oil. And there is also vast opportunity in the pipeline rehabilitation programme, given that 800km pipelines are over 30 years and would need to be replaced soon.
Petronas’ RM15 billion North Malay Basin project is another that might require Wah Seong’s pipe coating skills. This involves the construction of a 200km long pipeline to transfer gas from nine fields to Kerteh in Terengannu. The project is expected to rolled out soon, given Petronas ambitious timeline of first production by 2013.
Meanwhile, the Gulf of Mexico would be the next growth frontier for the company with the expected commissioning of its two plants in Louisiana , United States , by the second half of 2012. These plants would be operated via a joint-venture which would springboard Wah Seong's entry into the Gulf of Mexico region by leveraging on its partner’s infrastructure.
Australia would remain a key driver for the company as it would offer huge potential due to large number of liquefied natural gas projects.
Meanwhile, Wah Seong is looking for potential mergers and acquisitions to boost the contribution for its non oil and has division which is part of the initial public offering for its de-merger exercise to unlock value for the company.
As at Dec 31, 2011, its order book stood at rm1.2 billion.
Meanwhile its planned venture into oil palm cultivation in the Republic of Congo is considered risky as the company has no experience in this field. It is also the first listed company to do so in the republic.
The concerned is due to sociopolitical risks in the country. Market observers do not see any catalysts in the short term coming from this venture as it will take some time before Wasco can reap the harvest. If it succeeds in this, the oil palm venture will be good recurring income for the long term.
On Feb 3, 2012, it had entered into an agreement with Silvermark Resources Inc and Ginat Dragon Group Ltd to subscribe for up to 51% equity interest in Atama Resources Inc (ARI) for US$25 million. Silvermark and Giant will hold the remaining 49%.
ARI has a 30 year oil oil palm plantation concession agreement with the government of the Republic of Congo . Under the concession, ARI has the right to occupy 470000 ha to develop oil plam plantations and compexes.
At this juncture, 180000ha or 38% of the concession land has been identified as highly suitable for plantation. ARI will begin planting by 2QFY2013 and the development of the 180000ha is expected to be completed in 10 phases over 15 years.
Wasco will raise half the rm75 million share subscription in ARI via bank borrowings while the rest will com from internally generated funds. As at end Sept 30, 2011 Wasco had rm515 million in cash and rm726 million in borrowings. It has a net gearing of 0.2 times based on its shareholders’ funds of rm987 million.
Although the bank borrowings portion for the share subscription in ARI will only raise Wasco’s gearing to 0.25 times, the venture might become a financial burden in the future. Estimate that it will cost between US$4000 – US$6000 per hectare to develop oil palm to maturity.
Based on the initial 180000ha that have been identified and the US$4000 per hectare development cost, the capex is estimated to be at least US$48 million per year. Wasco will also need to pay RM15 per hectare to the government.
Once ARI becomes a 51% subsidiary of Wasco, its borrowings will need to be capitalized or consolidated in the latter’s balance sheet to develop oil palm plantations. This will undermine Wasco’s ability to seek new borrowings for its oil and gas ventures. This will become a burden unless it manages to hive off its oil and gas business soon, which is currently its bread and butter.
The venture will have a long gestation period. Wasco and its partners are looking at an unplanted area, which may take about five years to see first harvest.
The foray could be a move by management to seek recurring income after hiving off the oil and gas segment. Currently, all of Wasco’s six business divisions are parked under its wholly owned subsidiary Wasco Energy Ltd (WEL).
Under thr proposed demerger exercise, the non oil and gas pipe manufacturing, renewable energy and trading businesses will be parked under Wasco, while WEL will run the oil and gas business. The demerger exercise had been slated for mid 2011, but it was postponed. However, with the new venture, Wasco may be able to complete the demerger soon as the share subscription in ARI is expected to be completed in 2012.
Once Wasco completes the share subscription, it will appoint four of the eight directors in ARI. A director of IGB is also a director in ARI. IGB’s group MD Robert Tan is also the chairman of Wasco, and his family holds a 40% direct and indirect stake in the latter.