Jumaat, 25 Oktober 2013

The Star Online: Business

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The Star Online: Business

By buying Newfield, SapuraKencana has become an integrated O&G company


EARLIER this week SapuraKencana Petroleum Bhd became an integrated oil and gas player when it won the bid to buy United States-based Newfield Exploration Co's oil and gas assets in Malaysia for a hefty RM2.85bil.

With SapuraKencana clinching this deal, it officially stands among the few players that are both field owner and one who offers support services. So far, only Petrofac and The Maersk Group fall into this category.

So what does SapuraKencana get from parting with RM2.85bil?

For starters, some reserves of 36 million barrels of oil equivalent (boe) with a daily production rate of 23,000 boe. So let's say, if SapuraKencana were to drill every day, this would mean that the reserves are good for 4.3 years.

Newfield is the fourth largest oil and gas producer in Malaysia, with interests in nine production sharing contract (PSC) blocks spread over the country.

It should be noted that the PSC partners of the target company's subsidiaries are to be offered preferential rights to acquire the assets of the target company group.

Newfield owns its Malaysian assets via three wholly-owned subsidiaries, Newfield Peninsular Malaysia, Newfield Sabah and Newfield Sarawak Malaysia. The Malaysian assets delivered some US$400mil (RM1.24bil) of pre-tax profit in 2012.

In April, Newfield made a natural gas discovery off the coast of Malaysia. This discovery was made in the gas field of Block SK 310, where Newfield has a 30% interest. Mitsubishi Corp owns 30% and Petronas Carigali, 40%.

Newfield estimates there are 1.5 trillion to three trillion cu ft of gas initially in place after its discovery.


SapuraKencana was picked as the winner to buy all interests in Newfield Malaysia Holdings after a rigorous bidding exercise involving more than 40 international companies.

SapuraKencana president and group chief executive officer Tan Sri Shahril Shamsuddin had just finished a round of golf at the CIMB Classic, playing with the likes of Phil Mickelson, and Retief Goosen before coming to meet the press.

"I just got off a flight from the UK at 7am this morning. I went straight to the golf course! Played terribly today," he laughs.

He adds that before boarding the flight, he had called his father, Tan Sri Shamsuddin Abdul Kadir to say: "Dad, I just bought another company."

Putting in the winning bid came with many late nights. SapuraKencana had a team of nine people which focused solely on putting the bid together.

"On Hari Raya Haji, these guys were still here by late evening. I told them, guys, if you're not home by the time I get home, you're all fired! That's the kind of energy we have here, in our energy division," says Shahril.

When asked what SapuraKencana's edge was in winning the asset, Shahril simply says: "Our people. I truly believe, that we have the best people in the industry within our group,"

On now becoming an oil field owner, Shahril says that was not something completely foreign to the group.

"We have been managing the Berantai marginal field. We executed it at large and have been operating it in the last year.

"We have been building up our capabilities in the last five years and we have the facilities, in-house sub-surface capabilities, in-house economic modellers.

"This is an extension of our energy business. The strategy from our overall business hasn't changed," he says.

He adds: "We are very comfortable with this acquisition. We will see our debt levels start to go down next year. This is because the businesses with Newfield are already generating funds."

SapuraKencana has a gearing level of 1.1 times as of June this year. As a field owner and operator, the Newfield business will require a different set of operating principles and as such, SapuraKencana will manage this new business division separately as an independent subsidiary.

SapuraKencana will be financing the acquisition via a combination of internally generated funds and external bank borrowing.

"Our priority now is to complete this acquisition by the first quarter of next year. The financing for this acquisition will be ringfenced. It is a different business with different risk and different expertise. The profiles are totally different. However, there are so many options out there on how to fund it. Its still early days. Lets close first and then we will clarify later. As it is however, Newfield is already value accretive. It will create values that are pretty close to those created for SapuraKencana," he says.

According to industry sources, the syndicate of banks were led by CIMB Bank and Standard Chartered Bank as the lead bankers, followed by other international banks.

Lowering its debt level

Meanwhile, there have been rumblings that the company could be overgearing itself following the purchase of Newfield.

It now has long-term and short-term borrowings totalling RM10.8bil, which includes the loan from its merger to Kencana Petroleum and bridging facility for the acquisition of tender rigs business. Presently it has an orderbook of RM25bil and cash of RM1.1bil in cash.

Shahril explains it has already been made known that SapuraKencana plans to undertake longer term financing to achieve an optimal capital structure.

"We were in a situation when some of the shorter term bonds were matched to the long-term contracts. So what we are doing now is to combine the bonds, and match it to the businesses and the tenures of the contracts that we have. The debt will be matched to the long-term nature of the assets we have purchased," he says.

Shahril says that one cannot grow a company without debt.

"You need to see where the debt is going. When we buy something, there are many assets that come with it. Take the Sapura 3000, a pipe laying barge that we bought in the early days. (At a price of US$220mil).

"We issued convertible bonds for it. Today, it is one of our most prized assets. So now we have contracts of RM25bil, but there is cashflow and resources to back it. What we have to manage is the execution of those projects," says Shahril.

Shahril says that while its still early days, capital expenditure required to produce the fields of Newfield would be at least RM1bil per year.

The few analysts that have issued their reports are mostly positive on the deal.

AmResearch analyst Alex Goh in his AmResearch report sees the Newfield acquisition as a highly attractive entry for a new domestic PSC operator. In fact, based on his numbers, he sees a 42.7% increase jump in SapuraKencana's net profit to RM1.26bil for its financial year ended Jan 31, 2015.

Budget 2014: GST rate within analysts expectations


THE "long-overdue" goods and services tax (GST) – unveiled by Prime Minister Datuk Seri Najib Tun Razak in Budget 2014 – has received the thumbs up from economists and tax experts.

The broad-based tax, which comes into force on April 1, 2015 at 6%, was largely within expectations of 4%-6%, Kenanga Research economist Wan Suhaimie Saidie told StarBizWeek.

"This budget is geared towards fiscal reform. The lead-time of 17 months also leaves ample time for compliance," he said.

Although Wan Suhaimie is leaving most of his economic projections unchanged, he pointed out that the Government's fiscal deficit reduction target of 3% by 2015 might be a stretch given that the new tax will not take effect until the second quarter of that year.

Still, the country's fiscal balance would get some reprieve from subsidy cuts to sugar and other items, he said.

Consumers would also need an adjustment period of six to 12 months, but the "offset package" in the form of tax-exemptions on food, healthcare and public services, as well as the one-off RM300 cash handout, would cushion any impact on low-income households, Wan Suhaimie added.

Demand, along with inflation, might spike just ahead of the April 2015 deadline as consumers hoard goods and services to stave off higher prices, which could spur an interest rate hike by the central bank, he explained.

Conversely, a knee-jerk reaction in the opposite direction could take place right after GST is implemented, which might see consumers refraining from discretionary purchases or spending less.

This might dent growth rates, if only slightly, in the short term, Wan Suhaimie said.

"Given that a 4% GST rate would largely be revenue-neutral, the 6% rate bodes well in terms of signalling the Government's serious intent to improve its fiscal housekeeping," OCBC Bank economist Selena Ling said in a statement.

"Coupled with the market-friendly 1% point corporate income tax cut to 24% is the one-off cash assistance of RM300 to BR1M recipient households, as well as an individual income tax cut between 1%-3% points to improve their disposable income. These will surely help soothe GST transition pains."

RHB Research said it expected headline inflation to average 2.2% for this year but head north to 2.8%-3.2% next year, depending on the extent of subsidy rationalisation.

Crucially, GST would eliminate double-taxation and overlap that plagues the current sales and service tax regime, said Crowe Howarth Malaysia managing partner Poon Yew Hoe.

"GST does not add to the costs of doing business as prices are based on cost and not cost-plus-tax," he told StarBizWeek.

In theory, the price of manufactured goods should come down because sales tax is currently levied at 10%, compared with 6% for GST, Poon explained.

The consumption-based tax, which is more comprehensive and transparent due to the multiple layers of cross-checking, was also an effective measure to curb tax evasion, he said.

Poon noted that telco players, restaurants and those in the hospitality industry should not feel the pinch because they already pay 6% in service tax currently.

"For the Government to rely on GST as a stable source of revenue, the rate will need to be progressively raised over time. It could be increased to 8% after the first three years and to 10% three years later.

"That said, 6% is a good start and the Government's income will improve with GST's coverage of the whole supply chain," he explained.

Budget 2014: Broadband phase 2 set to take off


A TOTAL of RM3.4bil will be allocated for the next phase of the country's high-speed broadband (HSBB).

Of this, RM1.8bil will be spent on expanding coverage in mainly urban areas to benefit 2.8 million households nationwide. The Internet speed will be increased to 10 megabits per second (Mbps).

Another RM1.6bil will be spent on expanding HSBB to suburban areas, with the Internet access speed increasing to between four and 10 Mbps, which will benefit two million consumers.

Telekom Malaysia Bhd (TM) currently owns and manages the existing HSBB network, which it started to construct in 2008 in an RM11.3bil public-private partnership agreement with the Government.

Budget 2014, however, did not disclose which party would fund this HSBB expansion, which is being termed as HSBB2.

However, sources have indicated that TM may be forking out the bulk of these investments, with the Government bearing a smaller portion.

TM declined to provide details on the funding plans for HSBB2 and said discussions on the project details were still ongoing.

Group chief executive officer Tan Sri Zamzamzairani Mohd Isa applauded the Government's decision to expand the HSBB project to its second phase.

He said TM was committed to continue expanding the broadband reach holistically across urban, sub-urban and rural areas and enhancing broadband user experience.

"For broadband for the general population, especially in under-served areas, we would continue to strengthen our fixed-line services while exploring other alternative technologies," he said.

The establishment of the submarine cable network to serve the bandwidth capacity requirements of Internet users in Sabah and Sarawak is much welcomed in anticipation of increasing future capacity requirements and ever-growing data needs.

"A tremendous growth of data is expected over the next few years in tandem with an increasingly dynamic and high-growth business environment in Malaysia, tied with the exponential rise in Internet usage," Zamzamzairani said.

Analysts said TM could leverage on its balance sheet to make the investment. As at June 30, TM had a total of RM3.44bil in cash and cash equivalents and a free cashflow of RM1.03bil.

An analyst said TM's broadband service UniFi was gaining more traction, with its numbers continuing to look good. In the second quarter, the UniFi customer base was up 50.3% year-on-year (y-o-y) to 577,000, while TM's overall broadband customer base grew by 7.1% y-o-y to 2.15 million.

Meanwhile, 1,000 telecommunication transmission towers will be built over the next three years to increase Internet coverage in rural areas, with an investment of RM1.5bil.

To increase Internet access in Sabah and Sarawak, new underwater cables will be laid within three years at a cost of RM850mil.

These investments will utilise the Universal Services Provision Fund, which is under the purview of the Malaysian Communications and Multimedia Commission.

Kredit: www.thestar.com.my

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