KUALA LUMPUR (May 13): According to news reports, a merger appears on the cards for Petronas-controlled fabricator Malaysia Marine and Heavy Engineering Holdings Bhd (MHB), and Permodalan Nasional Bhd's (PNB) 40% unit Sapura Energy Bhd.

While the potential merger of the two companies — MHB and Sapura Energy — has generated considerable interest, many believe that should it materialise, it could trigger an industry-wide consolidation that is long overdue.

There are now some nine Petronas-licenced fabricators, when there is only a need for two large players given Malaysia's market size. Similarly, the many offshore support vessel operators ought to merge to form larger, stronger companies with more assets.      

Other than Sapura CrestPetroleum Bhd's merger with Kencana Petroleum Bhd in 2012, which then morphed into Sapura Energy, and Dayang Enterprise Holdings Bhd making a mandatory general offer for Perdana Petroleum Bhd at RM1.55 per share in mid-2015, there has been no other corporate exercise consolidating the fragmented industry.

Globally as well, there have been signs of consolidation taking place. For instance, two Singaporean fabrication giants, Sembcorp Marine and Keppel Corp, merged their yards in March this year.

While oil prices have slipped and hit a year's low of US$72 per barrel earlier this month, most analysts and market players are betting on a rebound to between US$80 and US$100 per barrel in the near term.

According to industry players, even at US$72 per barrel, there are still reasonable margins to be made, which should augur well for the industry.

While there have been attempts made at consolidating the industry in the past, the efforts have largely failed for various reasons. One attempt in 2017 involved Velesto Energy Bhd, in which PNB — both directly and via its units — had a shareholding of 54.16%, while the other player, Icon Offshore, was 56.1% owned by Yayasan Ekuiti Nasional, a government entity. However, the deal fell through, purportedly because Petronas didn’t support the plan.

Will the industry consolidation really take off this time around, and which Malaysian oil and gas companies is it likely to involve?

Read about it in the May 15 issue of The Edge Malaysia weekly.

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