Ranhill's utility businesses to anchor Symphony

  • Business
  • Saturday, 12 Jul 2014

Ranhill Energy will get to list on Bursa Malaysia finally via a back door listing.

RANHILL Group, whose oil and gas business contributed to its failed listing last year, will now be going to the market without that unit.

Ranhill’s planned reverse takeover (RTO) of Symphony House Bhd will have its water and power businesses that include a valuable water concession in Johor and operation of two power plants in Sabah.

When Ranhill first announced its intention of reversing its businesses into Symphony back in March, it comprised the utility divisions and the oil and gas portfolio.

But in late June, Ranhill said the RM800mil RTO would only include its water and power assets.

Recall that Ranhill had previously pursued an initial public offering (IPO) slated for July 31 last year but withdrew it after a non-disclosure breach relating to a suspension of a Petronas licence of an affiliate company in the oil and gas division.

Ranhill’s major shareholder Tan Sri Hamdan Mohamad was reprimanded and fined RM300,000, while the company that was to have been listed, Ranhill Energy and Resources Bhd was imposed a fine of RM200,000 by the Securities Commission (SC).

In an email reply to StarBizWeek, a Symphony spokesperson explains that the omission of Ranhill’s oil and gas division into the current RTO exercise was because the latter had slipped into the red in 2013.

“Ranhill WorleyParsons Sdn Bhd (RWorley) was excluded from the initial assets to be injected into the RTO as it made losses in 2013, and by virtue of this fact we decided not to include it into the RTO,” the spokesperson says.

RWorley is Ranhill’s main O&G asset specialising in engineering procurement and construction services. It is 51%-owned by Ranhill in a joint venture with WorleyParsons Ltd, Australia’s largest oil and gas engineering company. The Australian-listed WorleyParsons holds the balance 49% in company.

According to the Symphony spokesperson, the losses that RWorley incurred was attributed to work for PETRONAS GAS BHD’s liquefied natural gas (LNG) regasification plant project in Malacca. In 2011, RWorley together with Muhibbah Engineering Bhd had undertaken the RM1.07bil contract for engineering, procurement, construction and commissioning (EPCC) of topside construction work for regasification plant.

Symphony did not reveal the amount of losses RWorley had made but says that “it has been fully accounted for in 2013.”

A fund manager said that while Ranhill’s oil and gas division was to provide a growth story for its listing, he understood why a decision was made not to include that in the listing now.

“A loss-making division in the RTO equation would not have been palatable. While an RTO is a fast track way for a public listing, it is still subject to approvals from the regulators,” says the fund manager

The O&G sector is Ranhill’s second largest earnings contributor at 38% in financial year 2012. Its water segment is the bulk revenue earner at 45% while power contributed 17% for 2012.

Ranhill recorded a net profit of RM282.23mil on revenue of RM1.99bil for its financial year ended Dec 31, 2012, according to its pre-IPO prospectus launched last year.

However there are plans for Ranhill’s oil and gas division to eventually get injected into Symphony.

“Symphony is still keen to acquire RWorley in the future once it returns to the black, which hopefully will be in 2014. This is the reason for the structuring of a call option arrangement, which can be exercised within 6 months of the listing of the special purpose vehicle (SPV), Ranhill Holdings Sdn Bhd,” the Symphony spokesperson says.

He adds that the valuation of the oil and gas division will take place at that point and subject to the approval of Ranhill’s shareholders post listing. He describes the O&G losses in 2013 as the only dip for a division that has been profitable in the past.

“The O&G business is a viable and sustainable one, and we believe shareholders will be able to benefit from the upside of this business in the long term, if and when the business is injected,” he says. The post listed entity has an option to buy the 51% interest in RWorley for a period of three to six months after listing.

The Symphony spokesperson adds that the exclusion of the O&G assets will not disadvantage the RTO as the power and water businesses are concession-based and have delivered sustained earnings and profitability.

Last year, Ranhill attracted controversy when Petroliam Nasional Bhd suspended of the licenses of its affiliate company, Perunding Ranhill Worley Sdn Bhd (PRW) for unsatisfactory work over the Malacca regasification plant. Ranhill had failed to disclosure this material information, until a little later.

PRW is private entity owned by Hamdan and is the vehicle that holds the Petronas-issued license. It has an agreement to exclusively appoint RWorley to carry out EPCC works for all projects undertaken by PRW. 

The SC had instructed the company to postpone its IPO indefinitely on July 25 in view of the non-disclosure issue. The following day, Ranhill announced that it had terminated its IPO – a setback as some 70% of the proceeds were slated to be used to repay debts totalling RM1.9bil as at end-September last year.

The suspension of PRW upstream license was subsequently lifted by Petronas, but the status of PRW’s downstream licence is not known. The Symphony spokesperson when queried says this: ”PRW is a private company and is not a subject of the RTO. Hence, the reinstatement of the licence will have no bearing on the RTO.”

Still, some analysts say that Ranhill’s RTO may not be as attractive an investment proposition compared with its previously planned IPO, considering that RWorley is out of the equation.

“Oil and gas is a big investment theme at the moment. Minus this, there is less of a pull factor,” says Interpacific Research’s head of research Pong Teng Siew. Pong however added that Symphony would be attractive for investors seeking defensive plays.

Ranhill’s power and water businesses churn out stable earnings. Analysts note that in the power division, the Powertron-run plants in Sabah are operating at full capacity while the power purchase agreement contracts include full cost pass-through of higher fuel gas prices.

In its water division, Johor has been Ranhill’s water state, where it has drawn stable earnings, and the 80%-owned SAJ Holdings water treatment company has entered into an asset sales-and-leaseback agreement for 30 years with Pengurusan Aset Air, the custodian of national water assets. Ranhill is also looking to expand further into Thailand and China in the near future with a target to increase its water processing capacity to 1000 million-litres-per-day (MLD) by 2015 in China from the current 270 MLD.

Still, Ranhill had banked on its O&G division to boost the attractiveness its previously planned IPO.

Hamdan in an interview last year had said that while its water business contributed the biggest share of the group’s revenue, the O&G business was expected to expand faster over the next few years, proving to be the growth story of the stock.

SJ Securities Sdn Bhd in a pre-IPO note on Ranhill last year noted that Ranhill has nearly 30% market share in the local O&G engineering services industry in 2011.

That said, analysts have also noted that there are challenges in the growth of its oil and gas business, notably with the Malacca regasification plant project having come to an end. This was one of Ranhill’s major local projects. But Ranhill is banking on a decade-long partnership via RWorley to win deals as Petronas ramps up its capital expenditure in the O&G sector.

It remains to be seen how big a role Hamdan – who was a high-flying corporate personality in the 1990s – would play in the post-listed entity, given the previous corporate governance transgression.

Notably, Symphony’s Tan Sri Azman Yahya will remain as chairman in the new firm, in which he will have a 4% to 5% stake. He has also volunteered to a 3-year moratorium in respect to this shareholding. As part of the RTO, Azman had bought out the business process outsourcing from Symphony.

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