What's NEXT For Scomi Grp/IJM Corp ....

IJM sees Scomi as an ideal investment vehicle to regain a foothold in the oil and gas industry.

 

The group had previously divested its fabrication business in 2007 after having seen its role as the main contractor diminished.

 

Having built up a diversified earnings base (construction, property, plantations, building materials, infrastructure concessions), IJM felt it needed a new growth angle to take the group to the next level.

 

Specifically, Scomi provides the group with an instant platform for IJM to participate in some Petronas jobs that require bumiputra shareholding.

 

IJM had previously highlighted the possibility of forging a joint-venture with Scomi to participate in some engineering works under Petronas' massive RM60bil RAPID project in Pengerang, Johor.

 

The estimated RM149mil proceeds due from IJM would be used to repay part of the group's RM500mil medium term notes.

 

Along with IJM, Maju Holdings' major shareholder Tan Sri Abu Sahid (8.7%) and his associate Datuk Siew Mun Chuang (5.3%) have surfaced as major shareholders of Scomi with a combined 14% stake.

 

For the last three years (2009-2010), the Scomi group had embarked on a series of internal restructuring exercises which include the disposal of under-performing foreign units.

 

In the United States , Scomi hived off its entire oilfield business where the run rate for jobs had shrunk as much as 80% to around 40%. Similarly, the group is planning to exit the markets in Nigeria and Algeria , and has reduced its UK investments to 20%. Central to its restructuring plans are the internal reorganisation within the group that will see Scomi Marine emerge as an integrated oil and gas marine and drilling services provider. This involves a reverse take-over (RTO) exercise that will marry Scomi's eastern hemisphere oilfield services with Scomi Marine's offshore support services. As part of the exercise, the minority shareholders of SOL and two other units currently parked directly under the Scomi Group ie SKMC and Scomi Sosma would also migrate into the enlarged Scomi Marine entity.

 

Post-restructuring, the effective stake that Scomi will hold in Scomi Marine would rise from 43% to 66%. Scomi Marine made a capital repayment of RM136mil (RM0.18.5 sen per share) on 29 Sept 29 through the reduction of its par value (from RM1 per share to 45 per share) that gave rise to RM525mil. The balance RM330mil is to be set off the entire accumulated losses of Scomi Marine. This would result in Scomi Marine emerging with a cleaner balance sheet and a debt/EBITDA ratio of about two times (including working capital).

 

Taken together, do not discount the possibility of seeing Scomi Marine being chosen as the vehicle to bid for future contract bids rather than its parent, Scomi. By extension, this would also reduce the risk of IJM having to inject more equity into the Scomi group beyond its RM149mil investments.

 

Scomi's management revealed two key engines of growth which it believes would propel Scomi Marine to the next level. One is expanding core product base. Scomi shared that the group has an estimated share of 7% in the Eastern hemisphere drilling fluids and waste management market worth US$5bil.

 

Apart from Malaysia (40%) market share, Scomi is looking to ride the regional exploration & production boom by offering integrated upstream drilling services via an enlarged Scomi Marine.

 

Scomi also confirmed that it had put in bids for risk-service contracts (RSC) for two of Petronas' upcoming marginal oilfields.