SCOMIMR ... Jul10

It is close to disposing most of its stake in its Jalarta listed unit PT Rig Tenders Indonesia Tbk to a large coal miner.
The company may hive off part of its 80% stake in Rig Tenders to a joint venture that will be set up by the former and Indonesian coal miner. In return, Scomi Marine is expected to receive cash and an equity stake in the JV.

Scomi Marine may hold a 20% stake in the JV. Thus, with the disposal, it will be able to unlock the value in the Rig Tenders and get cash as well as income from the satke it holds in the JV.

The question is, how much can Scomi Marine gain from unlocking its value in Rig Tenders, and how significant is the future contribution from the JV? Will disposal of Rig Tenders be better than the sale of CH Offshore?

Proceeds from the disposal of Rig Tenders will most likely be used to reduce Scomic marine’s gearing, thus allowing it to take advantage of investment opportunities that provide better returns and to boost its operating capabilities.

As at Dec 31, 2009 Scomi Marine’s debt to equity ratio was 0.5 times, based on rm551 million in long and short term debts, RM86 million cash and shareholders’ equity of RM933 million. But after the disposal of CH Offshore, net debt will drop to RM184 million translating to 0.2 times gearing.

This could be the case with Scomi Marine’s disposal of Rig Tenders to the coal mining company. The synergy that Scomi will be able to provide its coal mining partner is the deployment of its vessels and work barges to transport coal. After all, coal transport is already one of Scomi Marine’s core activities apart from chartering vessels to the oil and gas sector.
By owning Rig Tenders, the coal miner will be able to reduce costs, lower risks, increase flexibility of production, increase control of transport and improve reliability. Reducing counter party risk will also help prevent disruptions to existing operations as well as help speed up its expansion plans.