Too many oil hubs?

IT is surprising that Benalec Holdings Bhd is calling off its plans to build a petroleum hub in Tanjung Piai in Johor.

In an announcement this week, the company said the agreement with its partners had lapsed and that there was no intention to pursue the matter further.

Notably, Benalec has influential partners in the form of the Johor royalty and businessman Datuk Daing Malek Daing A Rahman.

The plan included reclaiming and selling about 1,000 acres off the coast of Tanjung Piai for the purpose of constructing and operating a crude oil and petroleum storage facility together with a private jetty.

What is clear though is that with oil and gas (O&G) prices being where they are, all parties planning ventures into this sector have to rethink their business plans, just as the oil majors the world over are admittedly doing.

There are also a significant number of O&G hubs being planned in the state of Johor.

Petroliam Nasional Bhd is building its integrated O&G hub in Pengerang, where it would be spending RM60bil over several phases.

Dialog Group Bhd is building a deepwater petroleum terminal in Pengerang that involves an investment of RM5bil with Dutch oil and chemicals storage company Vopak as a partner.

There are two more O&G hubs in Johor already in operations – in Tanjung Langsat and in Tanjong Bin.

Not to be forgotten is the yet-to-be completed Asia Petroleum Hub bunkering and storage facility that is saddled with financial difficulties and is now under the control of banks.

No doubt, because of its proximity to Singapore, Johor is fertile ground for developing O&G hubs.

But the business is capital-intensive and has a long gestation period.

More importantly, it has to be driven by promoters who have strong partners and linkages in the O&G industry.

Enter the Muddy Waters types 

THE murky world of the “Muddy Waters” type of attacks on listed companies has seeped into Malaysian shores.

On Friday, a firm calling itself GMT Research raised concerns surrounding AirAsia Bhd’s accounting practices. The low-cost carrier’s shares took a hit early yesterday but recovered before the end of the day.

GMT Research seems to be the first significant attack on a Malaysian company by such a firm. Just across the causeway, the market knows all too well about the shenanigans of such firms. Muddy Waters Research is fast becoming a household name in the Singapore corporate world. As described by Dr Lawrence Loh, deputy head and associate professor of strategy and policy at the National University of Singapore Business School, Muddy Waters is “a short-seller-cum-whistle-blower that rains down on companies to expose alleged dubious business practices and lapses in corporate governance”.

Muddy Waters had produced reports questioning certain practices in Singapore listed firm Olam International Ltd back in 2012 and more recently, on Noble Group Ltd, both firms being large Asian-based commodity traders.

GMT Research, however, claims it is not a short-seller but an accounting research firm licensed by Hong Kong’s Securities and Futures Commission. It had previously issued a report on Noble Group, adding to damaging criticism led by little-known research firm Iceberg. How GMT Research goes about its attack on AirAsia will be closely watched. But the one big difference in the Malaysian market compared to other markets is that it only allows regulated short selling, which means that short-sellers are limited as to how much of that activity they can carry out. Still, the market will be watching closely and seeing if there is any truth to GMT Research’s claims. AirAsia’s Tan Sri Tony Fernandes has been quick to tell his investors that the fundamentals of the company he built were intact.

Whatever the case, as Loh points out, the emergence of these types of research firms is the new reality that all public-listed companies, both big and small, will have to be ready to face.

FGV’s latest acquisition

FELDA Global Ventures Holdings Bhd’s (FGV) plan to acquire a stake in an Indonesian plantation group adds to the series of acquisitions that the Malaysian group has embarked on since its listing in 2012.

It is paying around RM2.37bil in cash and issuing 95.44 million new FGV shares for a 37% stake in PT Eagle High Plantations Tbk — the third-largest plantation group listed in Jakarta. FGV is also buying the sugar businesses from the vendor, namely, the Rajawali group.

FGV says that the proposed acquisitions are “in line with its plan to transform the FGV Group into one of the largest integrated plantation companies globally, through increasing land bank, improved age profile of crops, potential cost reductions and a strategic long-term partnership with Rajawali — one of the most notable conglomerates in Indonesia”. It also said the acquisitions are to contribute positively to FGV’s earnings.

The plantation it will buy has been on sale for more than six months and the 95.44 million shares to be issued to Rajawali group will mean a small stake in FGV. The risk and onus is on FGV to work on assets as FGV, which has yet to fully realise returns from Pontian estates, enters into another acquisition. Is this a wise move?

On Monday, when FGV’s shares resume trading, it will be clear as to how the market perceives this latest acquisition plan. FGV and its investors have been on a rough ride since its June 2012 initial public offering (IPO). Its first-quarter results this year was a net core loss of RM44mil - the third consecutive quarterly loss for the group - which left analysts disappointed.

Some research houses have downgraded FGV, citing concerns that FGV could potentially lose its spot on the FTSE Bursa Malaysia Kuala Lumpur Composite Index list due to its low market capitalisation when the review is carried out soon.

FGV’s market capitalisation has been wiped out by 66% to RM6.78bil from RM20bil in the early days of its listing, while its share price is currently trading at RM1.86, down by 59% – a far cry from its IPO price of RM4.55 per share. FGV will have to convince its investors that its latest deal will be able to significantly reverse these negatives.