PETALING JAYA: TH Heavy Engineering Bhd (THHE) has officially started work on its floating production, storage and offloading (FPSO) topside for client JX Nippon Oil & Gas Exploration of Japan in Pulau Indah, a project that should help its ailing fortunes.
Recall that THHE had won the FPSO project, worth US$900mil, from JX Nippon in May 2014. This is the company’s first FPSO project.
The contract entails THHE providing its FPSO facility to JX Nippon for the Layang oil and gas field, located in Block SK10 offshore Sarawak.
In a statement yesterday, THHE said it had held a steel cutting ceremony in Pulau Indah last week to mark the start of its Layang topside FPSO.
THHE’s chief executive officer Nusral Danir said the company was fabricating its Layang FPSO topside at its Pulau Indah yard instead of constructing it in Dubai.
“The FPSO, which is undergoing conversion works in Dubai, is expected to set sail to Malaysia and be ready for integration in the second quarter of next year,” said Nusral.
The project is expected to be completed by the third quarter of next year and be leased to JX Nippon until November 2023, with an option to extend the lease for an annual one-year lease up to October 2033.
“The contract is a long-term contract that will bring in a steady stream of revenue for THHE by the third quarter of 2016,” said Nusral.
Nusral replaced the long-serving CEO of THHE, Datuk Nor Badli Mohd Alias, in June.
THHE has been posting losses since the second quarter ended June 30 last year.
It has been estimated that the total cost of the FPSO conversion is US$230mil or RM875mil.
THHE’s gearing level stands at 1.4 times.
It has been reported that most of THHE’s current borrowings are related to its JX Nippon FPSO Layang project to part-finance the acquisition and conversion of the FPSO asset.
THHE said its long-term FPSO-related borrowings would ultimately be self-funded once the FPSO Layang project is fully operational.
THHE has total outstanding borrowings of about RM527mil, out of which RM281mil are short-term in nature. The company has cash and cash equivalents of RM106.4mil.
THHE will be receiving fresh funds of RM275mil from its parent company Lembaga Tabung Haji (LTH) through a rights issue of Islamic irredeemable convertible preference shares.
Part of the funds would be used for the FPSO vessel.
Earlier this month, LTH was the sole subscriber of THHE’s rights issue exercise that had been undersubscribed at 69.96% by other investors in the company.
LTH has a 29.81% stake in the company. The pilgrim fund first bought into the company in 2008.
Shares in THHE closed 2.38% higher to 21.5 sen, with 8.5 million shares being traded yesterday.