KUALA LUMPUR (Feb 17): Shell Overseas Holdings Limited (SOHL) has engaged in a two-stage competitive process and comprehensive discussions involving a number of requirements including technical, operational and financial capability with a number of prospective buyers on the sale of its 51% shareholding in Shell Refining Company (SRC), said the SOHL in a statement today.

The financial capability includes the ability to fund the acquisition, refinance SRC's existing debt of RM1.2 billion and the significant investments required to meet Euro 4 and Euro 5 product specifications, according to the statement.

SOHL said it had held detailed discussions with a Malaysian prospective buyer in 2015, but they were not able to meet the requirements in terms of funding capability.

As a result of the competitive process, the outcome was as announced in Feb 1, 2016 where a conditional agreement has been reached with Malaysia Hengyuan International Limited (MHIL) for US$66.3 million (RM275 million) as it is the highest bidder that meet all the criteria for the acquisition.

The offer price by MHIL is in line with the book value per share of RM1.93 of SRC.

SOHL stressed that the sale of SRC should be seen in the context of the group's global strategy and portfolio activities.

With Shell group's downstream strategy to focus on a smaller number of assets where it can be most effective, a refinery of SRC's scale is no longer a strategic fit for Shell's portfolio.

SOHL noted that SRC has been loss making over the period of 2011–2014 although it reported a profit for the nine-month period ending Sept 2015. The decision to sell was made in view of its profitability, the significant investment required to meet Euro 4 and 5 product specifications and the huge existing debt of SRC.

SRC's share price is currently trading at RM2.88, a sharp drop of 41.7% since the announcement of the sale was made on Bursa Malaysia. The stock is among the top losers so far in 2016.