THE EDGE summaries 18 Feb - 24 Feb (Part 2)

Hock Seng Lee (HSL) venturing into O&G

• Sources say that the company will announce its venture into the O&G support sector (offshore vessels) soon (few weeks?)
• The Yii family, who founded the company, has always been involved in building tugboats and barges, but in a small way
• The source says the business will be injected into HSL, a Sarawak-based construction company and if materialised, it will be done on a bigger scale
• However, it is likely HSL will maintain a conservative approach and the investment into the O&G support sector will not be substantial
• An analyst said that the demand for O&G support industry is growing and there is currently a shortage of supply of offshore vessels
• HSL is said to enjoy healthy margins from its construction sector as it does not sub-contract much of its work
• Its niche business is land reclamation work, which has better margins that normal engineering work

TMI buying Khazanah's stakes in Indonesia's XL and Singapore's MobileOne

• TMI already controls 67% of XL and the additional 16.81% stake it is acquiring from Khazanah does not really add value in control
• Khazanah is selling its XL stake to TMI at a slightly cheaper price than the one paid by UAE's Etisalat
• TMI also buying 14.55% stake in MobileOne from Khazanah
• In return, Khazanah will receive RM1.58bil of new TMI shares and TMI will also take on SunShare's debt (as Khazanah's stakes in MobileOne is held by SunShare)
• Analysts say that the earnings enhancement from the additional stakes in XL and MobileOne will be diluted by the additional debts TMI takes into its books
• Analysts also reckons that Khazanah sees more upside n TMI versus TM (post demerger) and the deal is made to guard Khazanah against a large dilution of on entry of a potential new investor
• To recap, last week TMI's CEO said co-control of TMI is not an option at the point and a new foreign partner will be the one that can provide complimentary assets rather than capital alone

Sarawak Energy rising capex

• It is estimated that Sarawak Energy will spend more than RM30bil on capital expenditure until 2020, which is three times more than forecasted by the company in July last year
• In the past week, the launch of SCORE saw Sarawak Energy signing a number of MOUs, which were mostly related to Bakun dam and Rio Tinto/CMS smelter
• According to industry observers, Sarawak Energy's strategy in building its future power plants will be to enter into joint ventures with various parties
• Sarawak Energy's MD had announced that the company will spend up to RM10bil over the 8 years on hydroelectric and coal-fired power plants
• He said the plants will be funded by project financing as the current balance sheet will not be able to cope with the capital demands of these new projects
• The task of structuring the energy fund will be handled by a consortium comprising of RHB Islamic, Unicorn Islamic, Asian Finance Banks and Kuwait Finance House.
• So observers say that one strategy is to attract Middle East investors, but it must be said that Middle Eastern investors typically go for brownfield projects with 15%-20% returns, and not greenfield ones like all Sarawak Energy projects (returns around 10-14%)
• Sarawak Energy has a long road to go, and the EDGE quipped that it is under some pressure to deliver its promises and justify such high capex spending