KUALA LUMPUR: Singapore-headquartered AET Inc, the tanker subsidiary of shipping giant MISC Bhd — the shipping arm of Petroliam Nasional Bhd — is said to be looking at expanding its fleet with up to eight newbuildings costing close to US$500 million (RM1.91 billion), according to a Tradewinds report.

The shipping company, when contacted by The Edge Financial Daily yesterday, did not not deny nor confirm the report.

Last Friday, Tradewinds speculated that suezmaxes and aframaxes are both on the owner’s shopping list as it seeks out yards in Japan and South Korea.

Aframax and suezmax are tankers that are widely used for lightering services, which is a process of transferring cargoes from a larger vessel such as a VLCC (very large crude carrier), to make deliveries to ports that are unable to accept very large, ocean-going vessels. Suezmax is a naval architecture term for the largest ship measurement capable of transiting the Suez Canal, while an aframax ship is an oil tanker smaller than 120,000 tonnes and therefore unable to pass through the original Panama canal.

Tradewinds, quoting industry sources, said AET had asked major South Korean and Japanese yards to send in their quotes for aframax and suezmax tanker newbuildings. It further suggested that AET is said to be looking at ordering eight vessels that are either a combination of six aframaxes and two suezmaxes or four ships of each type.

“For shipyards submitting the newbuilding price is the first round of the order enquiry,” one industry player told Tradewinds.

“After that, AET will give the yards its technical specifications. Based on the original plan, AET should be able to decide on the shipyard by the end of August or early September, but the recent change in the company’s top management may cause a delay in the project,” he added.

It also noted that AET is looking at having the tanker newbuildings delivered from the later part of 2017.

“This is a challenge to some shipyards as most of their 2017 delivery slots are reserved for ultra large container ships and VLCCs. The situation will also be unfavourable to AET, as yards will try to firm up their prices,” one shipbuilding player was quoted as saying.

In April, MISC saw its share price hit a seven-year high of RM9.20, amid speculation over the possible sale of AET to US-listed Teekay Tankers.

But MISC dashed the rumour in a statement on April 24, stating that "MISC confirms that petroleum shipping is a core element of its current and ongoing business and, as such, has no plans to divest itself from its petroleum tanker subsidiary”.

Teekey subsequently said that its negotiations to buy an unnamed tanker fleet had failed.

To recap, MISC acquired AET in May 2003, when it forked out US$445 million in cash and funded a US$75 million dividend from AET to Neptune Orient Lines, the company which owned AET.

At the time, AET had 29 aframax tankers (22 owned and seven chartered-in) and two VLCCs. The acquisition increased MISC’s fleet to 37 aframax tankers and three VLCCs.

MISC has made several major disposals over the last few years, including the sale of its bulker arm, and more recently in 2011 its container shipping business. In late 2014, MISC sold its 15.73% stake in NCB Holdings Bhd to MMC Corp Bhd for RM221.98 million cash.

It has also attempted to dispose of its entire stake in MISC Integrated Logistics Sdn Bhd to Golden Age Logistics Sdn Bhd (GAL), but the deal was called off in January this year because GAL was not able to fulfil its obligations under the deal, valued at RM250 million.

GAL is a wholly-owned subsidiary of Utusan Printcorp Sdn Bhd, which in turn is a 40%-associate of Utusan Melayu (M) Bhd.

MISC’s (fundamental: 1.2; valuation: 0.8) share price fell 19 sen or 2.35% to close at RM7.90 yesterday, with a market capitalisation of RM36.4 billion.

The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company's financial dashboard.

This article first appeared in The Edge Financial Daily, on July 7, 2015.