Short Position - Scomi Energy's mess


  • Energy
  • Saturday, 02 Nov 2019

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Scomi Energy’s mess

The jewel in SCOMI GROUP BHD’s companies is its oil and gas arm - SCOMI ENERGY SERVICES BHD. However, the problems of the parent company have left a deep cut on Scomi Energy.

On Thursday, the external auditors of Scomi Energy expressed doubts on its ability as a going concern, causing the company to be classified as an affected issuer under the Practice Note 17 (PN17) list. Now, Scomi Energy has to regularise its financial position before it can be placed out of the list.

The reason for the auditors to express doubts on Scomi Energy as a going concern boils down to it having insufficient funds to meet payment for a RM105mil bond issue, of which RM55mil is due for repayment on Dec 14 this year. The remaining is due in December next year.

Scomi Energy has some cash but is short of RM32.9mil to fulfil the obligations towards the bond repayment. The board assessed the situation and felt that its internally generated funds would be insufficient to meet the obligations.

Hence, Scomi Energy was flagged of as a PN17 company and its share price continues to languish as a penny stock.

Scomi Energy is working on a bridging loan of RM35mil to fulfil the shortfall for the partial bond repayment. However, so far, it is unable to fulfil certain conditions for the amount to be drawn down. Nevertheless, the company says that it is working on raising the money so that it can be extricated from the PN17 category.

Ironically, some of the problems of Scomi Energy are due to Scomi Group itself. Based on an announcement in July this year, Scomi Group still owes Scomi Energy RM50.24mil. Scomi Group plans to repay RM20mil from a fund-raising exercise it is undertaking, with the rest to be paid according to a schedule yet to be decided.

If the advances were repaid, would Scomi Energy be in the mess it is now?

It was not too long ago that Scomi Group wanted to consolidate its 65.64%-owned Scomi Energy. The exercise was shot down in a shareholders’ meeting held in January last year.

Looking at the profile of Scomi Energy shareholders, the next meeting looks to be a heated affair.

No passion for concessionsPharmaniaga Bhd’s tagline is “Passion for Patients”. However, it carries no marks when it comes to the concession agreement it has with the government.

Its concession agreement with the Health Ministry to purchase, store, supply and distribute medical supplies for hospitals in the public sector expires on Nov 30.

Health Minister Datuk Seri Dzulkefly Ahmad had in fact stated that the ministry would adopt an open tender system to decide on the logistics and distribution of medical supplies.

Nevertheless, the company appears to be harbouring hopes of some kind of agreement with the Health Ministry, based on the contents of its latest statement. Pharmaniaga, whose share price has shed almost 20% in the last two days, has stated that it has done everything appropriate to secure an extension of the concession.

However, it has not been successful. The company is awaiting official notification from the ministry.

What is so doubtful about the concession ending that has prompted Pharmaniaga to await the official notification? Is it to find out the actual reason for the end of the concession?

Pharmaniaga has held the latest concession for the logistics of medical supplies to public hospitals since 2011. In fact, the birth of Pharmaniaga came about from the privatisation of government medical stores in 1994.

At one time, it was under the influential Renong group.

Pharmaniaga supposedly played a role in cleaning up the mess with its timely distribution of medical supplies to every hospital in the country, even at the most remote of places. Of late, there have been proponents of Pharmaniaga who have stated that if the concession is not renewed, it would disrupt the supply chain.

Is there any danger of disruption in medical supplies?

Surely not in the modern world of technology, where last-mile delivery plays a crucial role in almost every services segment. From food to road tax and handbags, the products are delivered by various modes of transportation.

The e-commerce world is very advanced and hinges on an efficient logistics and distribution network. Each of the players has warehouses across the country and should be as efficient as Pharmaniaga.

In such an environment, Pharmaniaga will have a fight in its hands when the logistics and distribution contracts come up for tender.

Long-awaited policyThe National Automotive Policy is expected to be announced next week, a guideline for the automotive industry that has been long in the works.

The latest iteration of the blueprint for the auto industry is expected to lay down the direction in which the government intends to take the automotive industry forward. It will be eagerly awaited for its policy-setting direction as pertaining to the incentives auto makers can expect when selling cars in Malaysia.

Notwithstanding any details about flying cars, the policy is expected to spell out what the industry can expect from the government when making or assembling cars in Malaysia.

For sure, details about energy-efficient vehicles will feature in the new policy direction. The last policy too had laid down the incentives in the country when it comes to making and selling cars, but the situation then and now are different.

For one, sales have stagnated at the 600,000 range.

Carmakers are fighting and taking market shares from each other as the industry evolves with the changing times. A better MRT system and the proliferation of e-hailing services make owning a car less essential than it was before.

For carmakers, though, given the market dynamics in Malaysia, it will bear watching if the policy lays out incentives for exports from Malaysia to regional countries.

What the policy should encourage is job creation in Malaysia and also lower prices of cars. Protectionism may be the buzzword when it comes to more developed countries, but as a trading nation, Malaysia has to look at ways to see more cars being sold to regional countries.

Also, with needing to conform with environmental requirements, energy-efficient cars should be the focus.

Encouraging Malaysians to buy energy-efficient cars at a lower cost will help to lower the cost of ownership, and ultimately, put more cash in the pockets of the people.

The policy should be also a tool to encourage more investment in the auto industry in the country.

A better and more vibrant auto industry can be a wealth generator for the country, and in this regard, protectionism should be placed on the back burner when it comes to promoting the industry in the country.

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