Muhibah ... Apr12

Switzerland based Mercuria Energy Group Ltd is said to be partnering CIMB Group to revive the APH bunkering island project off Tanjung Bin in Johor.

It is learnt that Mercuria will establish a joint venture with a well connected local firm to invest in the APH project, which has stalked for the past one year. What APH lacks is a firm partner that can drive operations and be the off taker. Mercuria will fit the role.

Mercuria is presnet in various energy markets.

There have been other suitors for the APH project, including PTT Thailand which was prepared to be the off taker and to lease the facilities on a long term basis. But nothing has materialized so far. PTT Thailand was keen when KIC approached it previously. But things may have changed which resulted in the entry of Mercuria.

The main shareholder in APH is KIC Oil and Gas Sdn Bhd with a 90% stake. Another 10% is held by Trek Sdn Bhd, a company linked to UMNO. KIC Oil and Gas appointed appointed ZAQ as the managing contractor. Muhibbah along with several other subcontractors, dealt with AHP through ZAQ.

A firm off taker agreement would help enhance the financial feasibility of the project.

To recap, CIMB in Dec 2011 sought a court order to appoint receivers and managers to restructure APH. This followed an increase in the construction cost. The bank had provided a rm1.4 billion facility via a three year bridging loan for the project, of which rm840 million has been drawn down. The amount was used to complete some 60% of the work.

Funding for the project stopped in late 2010. It is learnt that APH is seeking another

rm1 billion to complete the job, something that CIMB is reluctant to provide, leading the appointment of receivers and managers.

Cost overruns led to a delay in payments due to one of the major subcontractors, Muhibbah Engineering. Muhibbag was roped in at the start with an rm820 million contract to build a storage hub for oil with bunkering facilities on the island.

Muhibbah announced in late Feb 2012 that it had filed a cuit against the promoter APH, and ZAQ for rm381 million in overdue claims.

CIMB and Muhibbah are said to be looking to convert the amounts owed to them into equity. This would allow subcontractors like Muhibbah to assume a bigger role in the project. However, it is believed that the other creditors of APH are not keen on a debt to equity swap. ZAQ is said to be not in favor of the move as its stake would be too small and not meaningful.

In order for the restructuring to take place, CIMB needs 75% support from APH’s direct creditors.

One option is for a new shareholder to come in and inject fresh funds.

Meanwhile in Muhibbah’s books is an amount of rm381 million due from APH. Muhibbah is keen on debt to equity swap as it would allow the company to play a bigger role in APH. This would give Muhibbah cheap exposure as an oil and gas storage terminal operator. Other players have had to invest much more to be able to achieve something similar.

Muhibbah will joint the rank of Dialog and other oil and gas service players if it manages to get a stake in APH.

Beyond the bunkering project, Muhibbah said it had secured an order book of rm3.05 billion with jobs lined up to 2014.