This article first appeared in The Edge Malaysia Weekly, on November 30 - December 6, 2015.
IJM Corp Bhd is mulling its options for its 7.66% stake in Scomi Group Bhd. The construction giant could sell the block of shares, a source familiar with the company says.
The source adds that while the block of shares has drawn interest from some parties, no decision has been made on what IJM Corp will do with it.
IJM Corp’s lack of interest could be due to the dampened sentiment since the oil boom ended, which has caused Scomi’s share price to tumble.
One of the interested parties looking to buy the 7.66% stake or 119.11 million shares is said to be a group of businessmen that includes Datuk Kamaluddin Abdullah.
It is understood that talks between the two parties — IJM Corp and the group of businessmen — have been ongoing.
“There is still time to decide what to do with the stake in Scomi; IJM Corp has options,” the source says.
To recap, IJM Corp’s initial plan was to hold as much as 25.08% equity interest to become the controlling shareholder of Scomi in a deal valued at RM149.31 million back in 2012.
IJM Corp took up a 119.11 million share placement or 9.6% of Scomi for RM39.31 million or 33 sen per share. In addition, it subscribed for three-year zero coupon redeemable convertible secured bonds with an aggregate nominal value of RM110 million. If IJM Corp converts the bonds, it would have about an additional 15.5% in Scomi.
The bonds held by IJM Corp are convertible into new Scomi shares at a conversion price of 36.5 sen per share. The bonds mature on Feb 5 — barely two months from now.
Scomi’s shares closed at 20.5 sen last Friday, after hitting a low of 14 sen in late August.
Considering the current price of Scomi shares, and the prevailing poor sentiment in the oil and gas sector, the conversion of the debt paper into shares seems unlikely.
Given the current weak share price, the logical move for IJM Corp is to ask for a cash redemption of the convertible bonds which carry a 10% annual yield.
As at end-September, Scomi had cash balances of RM236.03 million, with short-term borrowings of RM695.72 million and long-term debt amounting to RM180.10 million.
For its six months ended Sept 30, Scomi registered a net profit of RM14.74 million on the back of RM717.65 million in revenue. It is noteworthy that Scomi’s finance cost for the six months under review was RM18.26 million, close to 124% of its net profit.
Scomi’s three main businesses are directly owned oil and gas mud drilling, monorail systems manufacturing held under its 72.33% owned subsidiary Scomi Engineering Bhd, and oil and gas support services housed under its 65.66%-owned unit Scomi Energy Services Bhd. Both subsidiaries are public listed entities.
If Kamaluddin were to buy the block in Scomi it would strengthen his grip on the company. He and his business partner, Shah Hakim @ Shahzanim Bin Zain, the CEO of Scomi, have a joint 11% stake via Kaspadu Sdn Bhd.
The relationship between the two soured in 2012, and IJM Corp’s entry into Scomi was seen as a means to prevent Kamaluddin and parties acting with him from gaining control of Scomi.
While it is not clear what happened, Kamaluddin is said to have had differences of opinion with Shah on the direction of Scomi. Some of the corporate personalities who rallied behind Kamaluddin then and acquired substantial stakes were Tan Sri Abu Sahid Mohamed, and Datuk Phillip Siew Mun Chuang.
Scomi partnered Australian outfit Cue Energy Resources Ltd, looking to morph into a risk service contractor and develop a marginal oil field for Petroliam Nasional Bhd (Petronas), but this did not materialise.
A year later, Scomi’s luck improved, and the company, partnering Ophir Production and Vestigo Petroleum Sdn Bhd, a wholly-owned unit of Petronas, bagged a small field risk service contract.
Of late, Kamaluddin, who is the son of former prime minister Tun Abdullah Ahmad Badawi, has been in the corporate news, surfacing in Enra Group Bhd (formerly known as Perduren (M) Bhd) with a 36.4% stake.
Enra is exploring opportunities in the oil and gas sector and has appointed such powerhouses as Tan Sri Shamsul Azhar Abbas, the former president and CEO of Petronas, and Datuk Anuar Ahmad, former executive vice-president of Petronas’ gas and power business, to Enra’s board.
Will IJM Corp’s divestment plan pave the way for Kamaluddin to strengthen his hold on Scomi? And subsequently, will the duo from Petronas be appointed to Scomi’s board if Kamaluddin takes control? While this remains to be seen, one thing is for sure — Scomi needs money for the bond redemption.
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