Published November 27, 2008

Failed deal sends Ramunia shares tumbling

It loses half its market value as the share dives 53% to close at 61 sen

By PAULINE NG
IN KUALA LUMPUR

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OIL and gas fabricator Ramunia Holdings lost more than half of its market value yesterday after a proposed reverse takeover by Malaysia International Shipping Corporation (MISC) was scrapped following a due diligence exercise.

'Operationally, Ramunia without MISC will be dogged by its poor track record, management and credibility.' - Aseambankers analyst Vincent Khoo

Ramunia's share price had been supported over the past months by expectations of the RM3.2 billion (S$1.3 billion) deal being concluded, so the market outcome was no surprise.

The counter hit limit down and was the top loser, shedding 69 sen, or 53 per cent, to close at 61 sen.

Its warrants and preference shares fared even worse, plunging 66 and 64 per cent respectively.

MISC, whose wholly owned subsidiary MSE Holdings was to emerge with 72 per cent of Ramunia after selling its entire interest in Malaysia Marine & Heavy Engineering (MMHE) to Ramunia in exchange for new shares, did not reveal the findings of the due diligence exercise.

It simply said that MSE will terminate the deal because the findings were unsatisfactory. Taking over Ramunia would have increased the group's shipyard capacity.

Aseambankers said that the decision to call off the deal could be 'macro-related' to the global financial crunch and the slowdown in the oil and gas industry, as control of fabrication space is less of a priority now that oil prices have sunk to US$50 a barrel.

But the market reaction underscored the importance of MISC to Ramunia. Without MISC, it is a definite loser, Aseambankers analyst Vincent Khoo said in a client note.

'Operationally, Ramunia without MISC will be dogged by its poor track record, management and credibility,' he said.

But Mr Khoo does not rule out MISC taking a second look at Ramunia down the track, though at a lower price given its intent to acquire fire-sale assets amid the current slump.

Last month, Ramunia was one of five companies to benefit from the award of 15 contracts valued at a total of RM2.8 billion by Petronas' exploration and production arm Petronas Carig-ali.

Although MMHE and another government-linked company Sime Engineering walked away with the lion's share, Ramunia's portion is worth RM140 million.

But even with new orders exceeding RM700 million from Shell and Petronas Carigali, Aseambankers expects Ramunia to be loss-making over the next few years 'due to poor execution'.

It missed out on a US$685 million contract from India's Oil and Natural Gas Corp this year because it could not come up with a performance bank guarantee and insurance certificate.

MISC, meanwhile, has been downgraded to an 'underperform' by CIMB Research in anticipation that tanker earnings will come under pressure from weaker shipping rates as the Organisation of Petroleum Exporting Countries (Opec) cuts oil production and global demand for petrochemicals softens.

MISC's container shipping division is likely to suffer significant losses this year and next as a result of the rout in freight rates for the Asia-Europe trades, said CIMB Research, adding that an anticipated flood of newbuilding deliveries next year could compound matters.