What now for Barakah?
JUST as things were starting to look up for Barakah Offshore Petroleum Bhd by way of a white knight coming in to revive its fortunes, it was dealt with another blow. The operating licence for its unit, PBJV Group Sdn Bhd, was suspended by Petroliam Nasional Bhd (Petronas) due to reported non-performance.
The white knight is Singapore’s Lecca Group Ptd Ltd, which is to emerge as the single largest shareholder in Barakah with a 44.87% stake as part of the plan to help regularise its financial condition and lift itself out of the Practice Note 17 or PN17 category.
But where does this unexpected development leave Lecca?
With the suspension, PBJV is unable to bid for new projects undertaken by Petronas, including its subsidiaries and any petroleum arrangement contractors for a period of three years.
Barakah said it is seeking clarification and appealing against the suspension. However, PBJV is still allowed to complete its existing and ongoing contracts with the national oil company, which essentially means there are cash flows coming in.
In the mean time, pending the appeal, it is perhaps a good time for Barakah to look internationally for future projects. It could also expand its scope to non-Petronas jobs.
Kenanga Research in a recent report noted that while contract flows in oil and gas have started to show signs of improvement, an upcoming upcycle may still be long and gradual, instead of an instant “boom” that match the peaks seen in 2013-2015.
Barakah can also leverage on its strategic alliance with Singapore-listed Vallianz Holdings Ltd, which is majority-owned by Saudi Arabia’s Rawabi Holding Company Ltd. Vallianz has exposure in the Middle East, Asia Pacific and Latin America.
So, while the going may be tough, all may not be lost if Barakah is able to take this opportunity to reset. As the saying goes, when one door closes, another opens.
FGV’s asset sale
Loss-making FGV Holdings Bhd’s recent move to dispose of its non-performing China-based palm oil refinery business is a step in the right direction, although the sale was made at only half of its initial cost of investment.
After all, the business - FGV China Oils Ltd (FGVCO) - has never made a profit since it was acquired in 2015.
At the time of acquisition back in March 2015, FGVCO was expected to be the plantation giant’s beneficiary of China’s large demand for edible oils.
However, as a result of the intense competition from other regional edible oil suppliers, FGVCO failed to become an important catalyst for FGV as envisioned previously.Instead, the business’ losses dragged down FGV’s financials, which were already affected by inefficient operations and the volatility in crude palm oil prices.
In financial year 2018, FGVCO registered a loss after tax of 25.43 million yuan, with total borrowings of 85.79 million yuan. However, it is worth noting that the palm oil refinery has seen a significant decline in its losses over the years.
Borrowings, on the other hand, have increased. Given FGV’s current condition and the urgent need to return to profitability, it makes sense for the plantation giant to dispose its loss-making ventures and focus only on profitable and core businesses.
For context, FGVCO’s shareholder funds as at Dec 31, 2018 were 108 million yuan. FGV’s original cost of investment in FGVCO was 320 million yuan.
With FGVCO off its balance sheet post-disposal, FGV’s bottom line is likely to improve. Moving forward, more asset disposals are expected to be announced by FGV, in line with the objectives of its 2020 transformation plan.
FGV has said that several non-core businesses and assets with an estimated value of RM350mil have been identified for disposal. The group also aims to save at least RM150mil in 2019 by “plugging leaks and addressing inefficiencies”.
It remains to be seen whether FGV will successfully regain investor confidence with its ongoing three-year transformation plan. At listing in 2012, FGV’s market capitalisation was RM16.6bil. Today, it is only about RM4.2bil.
What’s left in Putrajaya Perdana?
Putrajaya Perdana Bhd, a construction company, used to command a hefty premium because of its shareholders.
At the moment, the company that undertook some of the biggest construction jobs, including constructing the Finance Ministry in Putrajaya several years ago, is 70% owned by Cendana Destini Sdn Bhd, with Lembaga Tabung Haji (TH) holding the remaining 30%.
Cendana Destini is owned by Datuk Rosman Abdullah, an accountant by profession with extensive experience in corporate Malaysia.
Before Cendana Destini came into the picture, Putrajaya Perdana used to be owned by fugitive businessman Low Taek Jho, who is wanted for his role in causing huge losses in 1Malaysia Development Bhd (1MDB).
When former Prime Minister Datuk Seri Najib Razak was in power, Putrajaya Perdana was touted to be a beneficiary of government jobs by virtue of TH being a shareholder and the company’s association with its former owner.
However, after the 1MDB scandal broke out, Putrajaya Perdana’s premium eroded.
In an announcement earlier this week, MTD ACPI Engineering Bhd went into a heads of agreement with Putrajaya Perdana to acquire its construction arm and a development company. The new name for Putrajaya Construction is Orangebeam Construction.
MTD ACPI is in the construction space as it manufactures and supplies, among others, beams to the sector. It is not known for its prowess in the area of construction. On that score, the proposed acquisition of Orangebeam fits its strategy to be a well-rounded company in the area of construction.
The value of the deal would likely be based on the order book of Orangebeam. A few years ago, the construction arm was said to be valued at more than RM700mil. It was ripe for a listing that was supposed to be the exit strategy for TH.
Whether that remains will be known when more details on the proposed transaction emerge.