Monday, August 22, 2011

MISC ... Aug11

Speculating that national carrier MISC Bhd may put in a bid for a fleet of eight liquefied natural gas (LNG) ships owned by shipping giant AP Moller Maersk.

The bids are understood to be due by end-August 2011, with initial estimates valuing the fleet at US$1.3 billion (RM3.9 billion) to US$1.7 billion. AP Moller is understood to have roped in Deutsche Bank to assist with the sale.

Four to seven offers have already been made for Maersk’s fleet of LNG ships, but details were kept “strictly under wraps”. The bidding is likely to be a competitive affair with many large companies looking to partake in the sale.

Sources say MISC has roped in Japanese giant Mitsui & Co for a possible joint bid.

MISC has a fleet of some 180 ships, with about 60 vessels chartered from other owners. Out of this fleet MISC has 29 LNG carriers, which are all owned by the national carrier.

Considering MISC is 62.7% owned by state controlled oil major Petroliam Nasional Bhd (Petronas), and the national carrier is the shipping arm of the oil giant, the acquisition makes sense.

Petronas is in the process of setting up an import or re-gasification terminal for LNG at Sungai Udang Melaka at a cost of RM3 billion. This initiative to import LNG could require more vessels on MISC’s part.

Another shipping giant Mitsui OSK Lines (commonly known as MOL) is also said to have expressed interest in Maersk’s fleet of LNG carriers. Despite the similarity in name, Mitsui & Co and MOL do not any ties in terms of having similar shareholders. 

Another Japanese outfit, Marubeni, is understood to be partnering Canadian shipping outfit Teekay Corp and seems likely to join in the race. Both companies have expressed an interest to grow their LNG-shipping assets.

Three other names that have cropped up include Russian giants Sovcomflot, GasLog of Greece and tycoon John Fredriksen’s Golar LNG. GasLog’s current CEO Jeppe Jensen was formerly head of Maersk LNG, and ordered the ships that are now being sold.
In 2009, Fredriksen was ranked the 132nd richest individual in the world and is said to be worth more than US$4 billion. Sovcomflot is Russia’s largest shipping company and is wholly owned by the state.

About 20 companies are understood to have shown interest, but those keen on buying the ships, taking the tender documents, have had to sign several confidentiality agreements.
However, there could be hurdles for the buyers of three of the eight vessels, as oil major Total has to approve the charters on these ships currently servicing Yemen’s LNG project, financed under a French tax lease.

Its earnings fell to RM121.07 million in the quarter ended June 30, 2011 from RM427.98 million a year ago as it was affected by losses in the petroleum business as freight rates fell.

Revenue declined to RM3 billion from RM3.27 billion. Earnings per share shrank to 2.70 sen from 9.6 sen.

The decline in its profit was mainly due to losses in the petroleum business due to the weakening freight rates and higher losses in the liner business.

As for the lower revenue, this was due to a decline in revenue from the heavy engineering and liner businesses. However, higher revenue from the chemicals and offshore businesses helped to cushion the impact.

The group’s liner losses are expected to widen as demand from China eases on monetary tightening.

Of late, demand has also shifted from sea to air, an indication that most container shipping companies have just missed the Christmas shipping season owing to the earlier global supply chain distribution following Japan’s earthquake.

MISC’s FY11 earnings outlook remained unexciting in anticipation of flat earnings from liquefied natural gas shipping while petroleum and chemical shipping is expected to face low charter rates and oversupply of vessels.

The potential de-rating catalysts being these poor results, weak near-term prospects for petroleum and chemical tanker freight rates, and swelling liner losses.

Expect tanker shipping rates to remain depressed owing to prevailing overcapacity and that the problem might be exacerbated by the weakening global economy. However, MISC’s chemical and offshore business to moderate the downside from its shipping.

As at end March 2011, the shipping company had RM3.35 billion in cash, while on the other side of the balance sheet, the company’s long-term debts amounted to RM10 billion and its short-term commitments stood at RM1.25 billion. The company’s shareholders’ funds as at end-March were RM23.07 billion.

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