Scomies/Scomi Group - Tan Sri Quek Leng Chan

The buyers of the 268.79 million Scomi Energy Services Bhd shares that crossed ownership included parties other than Tan Sri Quek Leng Chan, with the single largest buyer being Paul Poh, a former long-serving employee of the Hong Leong group.

The block of shares belonging to Standard Chartered Private Equity Ltd, which amounted to 11.48%, had been up for sale since late 2013 and posed an overhang to the share price.

Scomi Energy has been bulking its order book and tipped to win a contract to develop a marginal oil field.

Poh, who is said to maintain a close relationship with Quek, bought about 40% of the block of Scomi Energy shares via his private investment vehicle Caprice Capital. Quek, the major shareholder of the Hong Leong group, took up the second largest portion of 30% or 80 million shares.

There were two other institutional shareholders who also jumped at the opportunity to pick up a block in Scomi Energy – Norway’s oil fund, Norges and Lembaga Tabung Haji (LTH). Norges, one of the world’s largest sovereign funds, took up 30 million shares, while LTH bought 50 million.

Norway’s Norges fund had in 2013 taken up 18 million shares in another local oil and gas services firm Daya Material Bhd, indicating the sovereign fund’s appetite for small stakes in Malaysian companies in that sector.

This new group of investors of Scomi Energy are said to have been attracted to the later’s drilling fluids and drilling waste management business.

Speculation that it is close to securing a risk service contract from Petroliam Nasional Bhd to develop a marginal oilfield in the Ophir cluster, off the coast of Terengganu.

At the Scomi Group level, IJM Corp emerged as a shareholder with an interest of 10%. IJM’s stake can go up to about 24% if the construction giant converts a RM110mil convertible debt paper issued by Scomi Group.

The entry of IJM and the subscription of the convertible debt papers stabilised the financials of Scomi Group, that is led by group chief executive officer Shah Hakim Zain who is also its major shareholder.

Scomi Energy (Scomies)/Scomi Bhd

Word has that Standard Chartered Private Equity, which is the second largest shareholder in the company, is looking to dispose of its 11.48% block in Scomies.

Together with the company’s parent – Scomi Group, they collectively control over 77% of Scomi Energy, a provider of services to the oil and gas and marine industries.

Notably, Scomi Energy chief executive officer Shah Hakim @ Shahzanim Zain had also been actively buying up shares in the firm in the May to June period, holding a direct stake of 0.09% at last look.

Scomi Energy, which not too long ago was only focused on marine services, involved specifically in coal transporting in Indonesia, has an extensive portfolio to offer to investors. The enlarged entity now encompasses drilling fluids, drilling waste management, production enhancement; and offshore support and marine logistics vessels.

The merger of all of its oil and gas (O&G) units also puts the company on a stronger financial footing, allowing it to “aggressively” participate in the industry.

Recall, its parent Scomi Group Bhd had in March 2013 completed its restructuring exercise which saw all its units involved in the O&G business consolidate under one entity - Scomi Energy.

Started in February 2012, the exercise saw the disposal of Scomi Oilfield Ltd, Scomi Sosma Sdn Bhd and Scomi KMC Sdn Bhd by Scomi Group to Scomi Energy.

It also involved an internal restructuring of legal entities within the oilfield services for oil field services in the Eastern Hemisphere business to fall under Scomi Energy; and also a capital repayment within Scomi Energy to its shareholders.

Scomi Energy reported a net profit of RM20.1mil on revenue of RM283.2mil for its latest quarter ended March 31.

Based on the latest financials, its net gearing is about 0.3 times.

The Eastern Hemisphere which includes Asia and the Middle East and which is where Scomi Energy is in, is set to see exciting growth in the oil and gas industry. These are the regions where it is active in with the streamlining of its business.

From mid 2012 it had already won several major contracts in Qatar, Indonesia, Turkmenistan, Myanmar as well as locally. It will continue to actively pursue contracts especially in Thailand, Indonesia and India.

Scomi Energy’s current drilling orderbook is at RM5bil.

Over the next couple of years however, it is setting its eyes on contracts worth some RM1bil even as it focuses on the execution of its existing contracts.

In Malaysia, drilling activity will intensify due to enhanced oil recovery, marginal field development and exploration. The Government’s effort in increasing oil and gas production forms a strong foundation for offshore drilling activities.

Scomi Energy will be one of the main beneficiaries given its 50% market share in drillling fluid and drilling waste management business in Malaysia. Addressable drilling waste market size for Scomi Energy is estimated to be US$2.1bil (RM6.7bil) this year.

Margin of its oilfield projects currently (July 2013) contribute the bulk to company revenue at more than 80%.

The restructuring has allowed the company to optimise its operations and to share resources, resulting in a very lean and flat organisation.

In terms of Scomi Energy’s expansion plans, it has continued to grow its facilities with increased storage at its Liquid Mud Plant in Kemaman and also recently over a period of several months, it completed outfitting its Liquid Mud Plant in Indonesia. 

For the marine services, the focus is on offshore support services (OSVs) and looking at a fleet revitalisation plan with new builds and acquisition of vessels. Scomi Energy embarked on a joint-venture with shipping firm Freight Management Holdings Bhd to jointly acquire, own and operate marine vessels.

The company’s plan to buy more OSVs is synergistic to the drilling business as the vessels are required to transport the drilling fluids and conduct other drilling-related services.

Its knowledge and expertise in the marine industry with the drilling fluids and drilling waste management segments is opening up vast opportunities to further” bundle” its services and to explore innovative solutions for its clients.

Currently, it owns 75 tugs and barges and 11 offshore support vessels.

Scomi Group

It had secured a rm98.5 million contract from Dragon Oil Ltd for the provision of drilling and completion fluid services in Turkmenistan. Aside from the Turkmenistan project, Scomi Group can also look for synergistic oil and gas opportunities locally.

The group’s energy and logistics division has a marine fleet dedicated to offshore support services, highly sought after by major oil and gas contractors.

Observers noted that Scomi Group CEO Shah Hakim has been steadily accumulating Scomi shares over the past month, acquiring close to three million shares since early May 2013.

Scomi Group’s 65% owned subsidiary Scomi Energy services Bhd’s prospects are bright due to rm5 billion order book and the prospect of more contracts.

SES also has the potential to secure up to rm400 million worth of contracts by end 2013 which would be a catalyst for further upside. The government’s efforts to increase local O&G production bodes well for SES, which has a market share of 50% in the drilling fluid and drilling waste management segment.

Scomi Group’s transport unit, Scomi Engineering is on the brink of clinching a major monorail project in India. It is one of the two companies still left in the tender process.

Scomi Group

In Feb 2013 it was reported that it is tipped to win a rm2.3 billion contract for the provision of drilling fluids. It is believed that Petronas has picked Scomi over a few intl names to get the lion’s share of the five year drilling fluid contracts available under the Pan Malaysia mega cluster.

Meanwhile Comic is also believed to have been successful in its bid for a job offered by independent oil producer Dragon Oil in Turkmenistan worth US$40 million is also for the provision of drilling fluids.

IJM Corp is now the second largest shareholder in Scomi after Kaspadu Sdn Bhd, a private entity owned by Shah Hakim and two other parties this is firmly in control of the company.

Meanwhile Scomi Group received full support to dispose its subsidiary, Scomi Oilfield Ltd to Scomi Marine Bhd.

Scomi Group has proposed to dispose its entire interest of 76.08% stake in SOL to SMB for a total consideration of rm766 million. It will be satisfied by 1.22 billion new ordinary shares of 45 sen each in SMB totaling to rm575.26 million. The remainder consist of SOL’s receivables to be assumed by SMB.

This reorganization exercise will put the company in a better position to raise funds when necessary.

Post reorganization, the group’s gearing will decrease to 1.21 times as compared to 2.09 times as at Dec 31 2011.


The group is constantly looking out for new investment opportunities and will take a closer look at them after the reorganization is completed.

Its current (May 2013) order book has surpassed RM5 billion with the latest contract worth RM98.5 million in Turkmenistan.

Scomi Group - which underwent a restructuring that saw the disposal of its stakes in Scomi Oilfields Ltd, Scomi Sosma Sdn Bhd and Scomi KMC to its 65.65 per cent owned listed arm, Scomi Marine Bhd - has been actively bidding for new jobs worth over US$1 billion (RM3 billion) in Malaysia and internationally.

Shareholders Tussle …

Its CEO and key shareholder Shah Hakim purchased 1.42 million shares on the open market at 42 sen per share during 20 – 21 May 2013. He currently (May 2013) holds a 12.17% stake in the company after actively purchasing Scomi shares in the past months prior to May 2013. Earlier in 2013, his shareholding stood at 11.49%.

The net asset value per share of the oil and gas player stood at 32 sen as at end Dec 2012.

Meanwhile Tan Sri Abu Sahid Mohamed said in May 2013 he could increase his stake in Scomi Group Bhd as he believes that the company is undervalued.

Abu Sahid, who owns 6.8 per cent stake in Scomi, however, looks to be staying for the long run. The tycoon last bought Scomi shares on March 19 2013 when he acquired some 1.19 million shares.

Shah Hakim is also a key shareholder of Scomi Group.

To recap, Abu Sahid had disputed IJM Corp Bhd's emergence as a shareholder in Scomi, citing that it will dilute the stake of current shareholders.

IJM's entry into Scomi is said to have the backing of Shah Hakim. Under the deal, Scomi would issue RM110 million worth of convertible debt to IJM, which, upon conversion, would see the construction company owning 24.3 per cent of Scomi.

The convertible debt proposal went ahead after gaining shareholders' approval.

He is quitting as Avalon Minerals Ltd chairman. Abu Sahid had bought into Avalon, a company listed on the Australian Stock Exchange, in 2008 and controls about 11 per cent of its shares. However, he has no plans to hive off his stake in the Australian company as he is betting that the mineral exploration company will deliver in the long run.

Scomi Grp/IJM Corp

Datuk Phillip Siew Mun Chuang increased his shareholding in Scomi Group Bhd acquiring an additional six million shares on 05 Nov 2012 and nudging his shareholding up to 72.98 million shares or 5.48% of the company. His purchased is ahead of a crucial shareholder meeting – to be held soon – to vote on the issuance of convertible debt paper to IJM Corp which could potentially use that to tighten is grip on Scomi Group if it chose to convert the paper into shares. Siew is against issuing the paper to IJM corp, citing dilution to existing shareholders.

 

Siew is aligned to Tan Sri Abu Sahid who has 7.7% stake in Scomi Group. The duo who collectively hold 13.1% stake in Scomi Group have aired their grouses against the existing board of Scomi Group and its CEO Shah Hakim over IJM Corp’s entry.

 

On the other side, Shah Hakim together with his partner Datuk Kamaluddin Abdullah have about 13.06% stake in Scomi Group. But things took another turn when Shah Hakim’s long standing partner Kamaluddin wrote to Kaspadu’s board seeking a split in their shareholding in the private vehicle, which holds 13.06% stake in Scomi Group. Kamaluddin and Abu Sahid are close.

 

While the shares placement to IJM Corp has gone through, the issuance of debt paper to IJM Corp and the conversion of debt paper to shares require approvals from Scomi Group’s shareholders.

 

While Shah Hakim and IJM corp just require a simple majority to push the proposal through, the simple majority may not be so easily achieved.

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.

Scomi's Shareholder

Daruk Siew Mun Chuang has surfaced as a substantial shareholder of Scomi group, controlling almost 62.5 million shares or about 5.3% equity interest after acquisition on the open market. Siew is MD of the Oriental Group of Restaurants. He holds stakes in many companies linked to Tan Sri Abu Sahid Mohamed of the Maju group fame.

Siew has about 8.4% in Australia listed Avalon Minerals Ltd, and is deputy chairman of the mineral exploration company.  The largest shareholder of the company is Abu Sahid who has about 15% stake.  Siew is also an independent and non executive director of building materials manufacturer IPmuda Bhd and has about 4.16% equity interest. Abu Sahid holds 8.9% stake and his Maju group has about 22% in IpMuda.

Siew is also an independent non executive director of Kinsteel Bhd and Perwaja Holdings Bhd in which Abu Sahid has substantial shareholding as well. Siew is director of Brigh Focus Sdn bHd, a private vehicle of Abu Sahid.

Abu Sahid had 10.21 million shares or 0.87% stake in Scomi Group as at end April 2012.

Siew came into the group to capitalize on a restructuring which has been ongoing for the past few months.

The first part of the restructuring entails an 18.5 sen capital repayment which has been concluded.

One of the aspects of the exercise is that Scomi has proposed to merge its oilfield service and associate company, Scomi Marine Bhd’s offshore support services, to create a new business unit. Under the plan, Scomi group will sell 76.08% owned Scomi Oilfield to Scomi Marine in return Scomi Marine shares. Subsequently Scomi will make an offer for sale of its Scomi Marine shares.

The proceeds are to pare down the group’s debts. Scomi group had a 42.71% stake in Scomi Marine. As at June 2012, Scomi group had cash and equivalent of about rm256 million and had short term borrowings of rm711 million and long term borrowings of rm387 million.