This article first appeared in The Edge Malaysia Weekly on May 20, 2024 - May 26, 2024

STATE-owned private equity firm Ekuiti Nasional Bhd (Ekuinas) is understood to be talking to Hubline Bhd (KL:HUBLINE) to explore the sale of Orkim Sdn Bhd in a deal potentially worth RM900 million, according to sources.

One of the sources says Hubline is already working with appointed bankers and advisers on the deal. “It is still under deliberation as they are working on the valuation.”

Another source says the deal came about after Ekuinas was approached for a potential acquisition of Orkim. It is learnt that the PE firm was not keen on the pricing, so it opened up the deal to potential buyers to bid for the company.

“There are also other parties showing interest in Orkim, but the most advanced discussions are with Hubline,” says the source.

In an email response to The Edge, Ekuinas says the group is “always open to exploring viable opportunities for investment and divestments”. “We will provide a timely update as and when appropriate,” it adds.

Meanwhile, representatives of Hubline declined comment.

Orkim began as a ship broker in 2004 and morphed into a ship owner five years later after taking delivery of its first vessel, according to its website. Its main business is transporting clean petroleum products (CPP) from refineries to various oil storage facilities and it currently has a 40% share of the market. It has a fleet of 18 vessels with an average age of 10 years.

Ekuinas bought a 95.5% stake in Orkim back in December 2014 for RM346.3 million from Global Maritime Ventures Bhd, a subsidiary of Bank Pembangunan Malaysia Bhd. Global Maritime Ventures managed a shipping finance fund that aimed to help shipping companies acquire assets. More often than not, Global Maritime Ventures and Bank Pembangunan took up equity interest in the shipping company they helped fund as well.

For a PE fund like Ekuinas, it typically has a time frame of four to six years to transform a company, creating value and opportunities in it, before planning a divestment. In the case of Orkim, the investment has been almost 10 years.

For the financial year ended Dec 31, 2022 (FY2022), Orkim’s profit after tax (PAT) stood at RM27.94 million, more than double the RM11.83 million it recorded a year earlier. Revenue for the period surged 27.4% to RM315.58 million from RM247.73 million previously. As at Dec 31, 2022, Orkim’s total assets stood at RM911.56 million while its total liabilities came to RM531.51 million.

The potential sale of Orkim has been in the news since May last year when Bloomberg reported that Ekuinas was exploring the sale of the shipping company and was seeking as much as RM1.5 billion.

Ekuinas has been on a deal spree. Just two months ago, it sold a 50.2% stake in Icon Offshore Bhd (KL:ICON) to Yinson Holdings Bhd’s (KL:YINSON) major shareholder Lim Han Weng for RM172.2 million or 63.5 sen per share. The block of Icon Offshore shares was sold to the Lim family vehicle, Singapore-based trading and logistics firm Liannex Corp (S) Pte Ltd, triggering a mandatory general offer (MGO) in the process.

Ekuinas had held the majority stake in Icon Offshore for more than a decade, since its investment in 2012.

Last Tuesday, Ekuinas announced that it would invest RM37 million in specialised agricultural machinery designed for the upstream palm oil sector with Mizou Holdings Sdn Bhd, two weeks after announcing it would acquire an 80% stake in pharmaceutical ingredients maker Symbiotica Speciality Ingredients Sdn Bhd.

Meanwhile, Hubline is a Sarawak-based shipping company that operates a fleet of 21 tugs and barges, with operating sizes of between 8,000 and 12,000 tonnes of cargo per shipment.

In its FY2023 annual report, Hubline said its top two categories of barge cargo were coal and gypsum. The most commonly executed trade was coal from Indonesia to Vietnam.

“Coal consumption continues to drive the overall commodity market in terms of barging logistics, with demand continuing to flow strongly into the opening of the 2024 financial year,” said Hubline.

The company also provides aviation services via subsidiary Layang Layang Aerospace Sdn Bhd. Hubline said the regional charter airline currently owns a fleet of 26 fixed-wing aircraft and helicopters, three of which were acquired in FY2023. Layang Layang Aerospace’s primary operational bases are located in Kota Kinabalu, Sabah, and Ipoh, Perak, while its operations cover the major towns in Sarawak and Sabah, as well as Labuan.

In the first quarter ended Dec 31 (1QFY2024), Hubline slipped into the red after posting a net loss of RM960,000, compared with a net profit of RM2.68 million in the previous corresponding period. Revenue for the quarter declined to RM53.09 million from RM75.54 million previously.

The single largest shareholder of Hubline is executive chairman Datuk Richard Wee Liang Huat, with an 18.2% stake. Another notable shareholder is Datuk Ibrahim Baki, with a 3.6% stake. He has been a director of Petroliam Nasional Bhd (Petronas) since 2020.

Hubline’s share price closed at four sen last Friday, giving the company a market capitalisation of RM285.71 million. 

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