Published December 9, 2008

Scomi to spend US$150m on vessels

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(KUALA LUMPUR) At a time when most companies are reluctant to incur costs on capital expenditure (capex), Scomi Marine Bhd plans to invest some US$150 million in the next three years to expand its fleet of marine vessels, according to a report in StarBiz.

There have been concerns that Scomi Marine, a 43 per cent associate company of Scomi Group Bhd, had not been investing substantially to expand its fleet in the last 2-3 years to take advantage of the uptrend in activities in the oil-and-gas and logistics industries.

The reason for this, according to president Mukhnizam Mahmud, was the view that prices of vessels were historically very high and not sustainable.

Mr Mukhnizam said: 'We were concerned that if the market weakened, it would be tough to ensure sufficient returns on investment from the assets.

'The intention was to ride out the 'growth' phase and once the market went into a downturn, prices would be attractive and at a more realistic level.

'We now see that situation occurring and asset prices have fallen,' he told StarBiz in a telephone interview.

He added that the global credit crunch had affected the shipping industry in terms of financing for shipyards and vessel owners as well as charter rates, which had fallen with the slowing economy, thus contributing to lower vessel prices.

The Dry Baltic Index has dropped more than 92 per cent to below 700 points from its all-time high in May.

The price of Panamax-sized vessels has also dropped to US$25-28 million currently from about US$80 million six months ago.

'We see the market being in this state at least until the end of 2009. Although prices have not come down much for the type of vessels we are looking at, there have been movements downward.

'Scomi Marine's strategy is to take advantage of this opportunity to acquire vessels at lower prices. The emphasis will be in three sectors - offshore support, bulk and tankers,' StarBiz reported Mr Mukhnizam as saying.

The group plans to acquire at least two anchor handling tug and supply (AHTS) vessels and an accommodation barge next year for its offshore marine support services division. It is in the midst of building an accommodation barge, which will be commissioned by next April.

'We are in discussions with customers on their requirements for 2009 and are in the process of identifying the vessels to invest in.

'Our planned capex for the segment is about US$50-55 million next year. Going forward, we plan to allocate US$30-40 million each in 2010 and 2011. Our aim is to acquire two AHTS every year,' Mr Mukhnizam said.

Under the energy logistics services division, Scomi Marine is also targeting to grow the number of tugs and barges for the coal (bulk) logistics business and tankers to service a new refinery in Dzung Quat, Vietnam.

The group, which services Indonesia's two largest coal producers, expects the tonnage carried to increase to up to 23 million tonnes next year from 21.5 million tonnes now, StarBiz reported.

'We want to add three or four new tankers with our joint-venture partner in Vietnam next year to service the Dzung Quat refinery, which will be fully operational by the second half of 2009.

'A total of about US$75-100 million will be allocated for the investment,' Mr Mukhnizam said, adding that Scomi Marine had a 20 per cent stake in the joint venture.