Firm to turn reclaimed land into petrochemical storage farms

MARINE engineering firm Benalec Holdings Bhd makes its business by reclaiming land from the sea and selling plots of newly created land to property developers.

That is its strategy in Malacca, but the company has other plans for its other reclamation projects in Johor, where it hope to turn part of the intended reclaimed land in Tanjung Piai into petrochemical storage farms.

“We have been actively engaging prospective clients for the project,” business development manager Brian Mak told StarBizWeek in an email reply.

Benalec recently started reclamation work at Tanjung Piai and is targeting to reclaim the first 100 acres by July this year.

The Tanjung Piai reclamation work is for 1,410 acres and the company earlier this week received the Department of Environment’s (DoE) greenlight to start the reclamation work at Teluk Ramunia.

“The group is amendable to accepting an equity interest in the potential client’s storage facilities or cargo terminal by way of part settlement of the purchase consideration of our reclaimed land,” Mak says.

The tank storage venture will create a new revenue source for the group.

Mak says Benalec is prepared to sell, lease or enter into a joint venture arrangement with interested parties to develop its reclaimed land project.

Land reclamation is done by filling an area with large amounts of heavy rock and/or cement, then filling it with clay and sand until the desired height is reached.

Storage shift

The Tanjung Piai reclamation work will have a considerable focus on storage for the oil and gas industry, where it has attracted the interest of players in the business of oil storage.

“When we take equity in a tank storage facility, Benalec will also receive recurring income from leasing out the tanks,” Mak says.

In a report, Mak says the company is willing to partner with existing storage operators to build and operate facilities within the area, and that an oil terminal could be operational as early as 2018.

It is understood that the prevailing oversupply of crude oil and its related products represents a positive direction for this industry as excess inventory has to be stored.

Suppliers need space to park oil and due to the shortage of storage area, some companies store their oil in tankers.

“To store it onshore is more economical,” says an analyst.

Tanjung Piai’s strategic location, where its near to Singapore serves as a hub for those based in Johor and Singapore.

Tanjung Piai is also well-positioned to absorb storage interest from Singapore, which is rapidly running out of land for development and has no more seafront opportunities to offer prospective operators, a report says.

“In turn, this presents interesting business opportunities to the Benalec and enables us to not only diversify, but to create future streams of stable recurring revenue,” he says.

It is expected that the total reclamation of the Tanjung Piai job will take up to 15 years to complete.

That project is carried out by 70% owned Spektrum Kukuh Sdn Bhd.

According to reports, among the directors of Spectrum Kukuh are the Johor crown prince Tunku Ismail Idris Sultan Ibrahim and Daing A Malek Daing A Rahaman, who are said to be partners to Benalec in the Tanjung Piai project.

To finance the large job, Benalec has successfully raised RM200mil from the issuance of Redeemable Convertible Secured Bonds in April last year to kick start the project.

With two major jobs under its belt, the impact on its share price can be positive. However, Benalac’s shares have been trending down since its listing in January 2011.

However, its stock has been in focus in recent days after Benalec received the Department of Environment’s (DoE) greenlight for the reclamation works on Teluk Ramunia.

Benalec’s Pengerang venture is earmarked as a container port to complement the nearby Petronas’ Refinery and Petrochemical Integrated Development project.

Benalec said the Detailed Environment Impact Assessment (DEIA) study submitted by its 70% owned subsidiary, Spektrum Budi Sdn Bhd, and Johor State Secretary Inc had been approved by DoE on Jan 7.

Mak says there is a considerable amount of preliminary work that needs to be done before the actual reclamation works can start off towards the end of this year.

Benalec will reclaim 1,673 acres of land.

“Hence the third or fourth quarter this year is a realistic timeline for us to discharge the first load of sand to flag off the official start of reclamation works,” Mak says.

Located close to the mega Petronas Rapid project, Benalec’s Pengerang project is strategically positioned to benefit from “spillover” investments from Rapid, which is expected to commence operations in 2019.

With population growth, comes opportunities for industries, transportation of goods, warehousing and cargo handling facilities, says Mak.

“Furthermore the gestation period for completion of our reclamation work on a phase-by-phase basis is relatively long.

“So it is reasonable to take the view that, as with business cycles, crude oil price will rebound within the next two to three years. This timeline dovetails nicely with our planned project progression,” adds Mak.

Spoiled by cheap oil

Despite weak oil prices, Mak says Benalec benefits from cheap oil as fuel is one of its major construction costs.

On the impact of a weak ringgit, most of its construction materials are locally sourced, so the impact is minimal.

Looking forward, Benalec remains justifiably confident in maintaining a positive outlook over the next few years, riding on its two major contracts.

Mak says Benalec is currently evaluating some potential reclamation projects in Peninsular Malaysia.

The group, which also does reclamation work in Malacca, boasts some sales revenue of about RM467.6mil contributed from the land sale of Taman Kota Laksamana, measuring 250 acres.

In addition, a 415-acre reclamation contract for Oriental Boon Siew (M) Sdn Bhd will pump in a further RM203mil for the group.

From Benalec’s point of view, Malacca is a mature market and prospects for land sales as well as price growth remain positive.

Coupled with a substantial acreage of land it will reclaim in Johor, the group’s venture into Johor provides the springboard for achieving business sustainability and good growth prospects over the next 10 years and beyond.

However, on a cautious note, the group has to temper its optimism by recognising that China, the world’s largest oil consumer, is experiencing slower growth.

“While we remain confident that Tanjung Piai will be host to multiple oil storage terminals, there remains a timeline risk as markets digest the myriad of dynamics in the business environment – oil prices, volatility, trends, financial leverage and the performance of the ringgit,” the group says.