Published May 19, 2009

Merger a sign of KL fabricators' consolidation?

Rationale could be similar to 2000-2002 bank mergers: report

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(KUALA LUMPUR) The sale of Ramunia Fabricators Sdn Bhd to Sime Darby Engineering Sdn Bhd (SDE) may spark a major consolidation involving government-linked companies (GLCs) in oil and gas offshore fabrication, says a report in Malaysia's Business Times, citing industry sources.

The GLCs include SDE, Ramunia Fabricators, Malaysia Marine and Heavy Engineering Sdn Bhd (MMHE), which is a subsidiary of MISC Bhd, and UMW Holdings Bhd, which is re-examining an earlier ambition to be the main force in the fabrication sector.

The Malaysian business paper said it has learnt that officials from one of the GLCs recently held talks with Petroliam Nasional Bhd (Petronas) to discuss the possibility of a consolidation to create a major fabrication entity in the country that can be competitive globally.

It was also in view of looming pressure led by falling oil prices, which is hurting the profit margin of oil and gas services providers and fabricators, a source told the Malaysian paper.

Oil prices are currently hovering around US$58 a barrel compared with a high US$147 last year.

'The consolidation by the (GLC) fabricators will not weaken their financial strength, but achieve economies of scale and higher productivity. It may happen this year or next. We have seen the first move by SDE over Ramunia Fabricators and are waiting for the next step,' the source said.

The source said the rationale for consolidation may be similar to the bank mergers in 2000-2002, which was to ensure that the domestic banking institutions could withstand pressures and challenges arising from globalisation and an increasingly competitive environment.

The move was in line with the government's policy of not to bail out weak companies, but to rationalise businesses towards higher productivity.

The paper quoted the source as saying that the current 'dry spell' in the fabrication industry - judging from the slowdown in the number of contracts awarded to fabricators and the absence of major awards to be contracted out to the companies at least until the year-end - would allow time for the GLCs to restructure and re-examine their synergy.

So far this year, there have been no major awards to engineering companies by Petronas or its production-sharing contractors for offshore facilities, with the exception of the Kebabangan Cluster gas project offshore Sabah.

'It makes sense to have a bigger group involved in fabrication to support Petronas and its activities in India and the Middle East. Petronas is developing a few major projects in offshore Africa, Australia and Turkmenistan. The GLCs will become more profitable by working together,' the source said.

There are seven fabricators in the country licensed by Petronas: MMHE, Boustead Penang Shipyard Sdn Bhd, state-owned Brooke Dockyard and Engineering Works Corp (BDEWC), Kencana HL Sdn Bhd of Kencana Petroleum Bhd, and Oilfab Sdn Bhd, a unit of OilCorp Bhd.

The Malaysian business paper had reported that Sarawak-based oil and gas firm Dayang Enterprise Holdings Bhd was considering buying BDEWC in a move to win more oil and gas contracts in Sabah and Sarawak.

It was learnt that Sime Darby, Naim Cendera Holdings Bhd and Shapadu Sdn Bhd were also interested, but nothing materialised.