Published July 10, 2009

Mega deal puts Rotary Engineering in big league

US$745m contract will reinforce its Mid-East presence

By VEN SREENIVASAN

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(SINGAPORE) In a development that elevates it to the big league, mainboard-listed Rotary Engineering has won a whopping US$745 million contract to build a tank farm at the giant Jubail oil terminal in Saudi Arabia.

After weeks of market speculation, the company confirmed last night that its Saudi subsidiary Petrol Steel Co has won a contract from Saudi Aramco Total Refining and Petrochemical Company (Satorp) - a joint venture between Saudi Aramco and multinational oil giant Total - to build 62 atmospheric storage tanks and eight 'bullet' tanks with a total capacity of some one million cubic metres at Jubail.

When completed, the 400,000 barrels per day export refinery will be the one of the world's most advanced.

Petrol Steel is 51 per cent owned by Rotary. The other 49 per cent is held by Saudi Arabia's Rafid Group.

More than 76 per cent of revenue from the tank farm project - some US$568 million - will accrue directly to Rotary. This includes the entire US$384 million for pre-fabrication work done in Singapore. Rotary will then get 51 per cent of the remaining US$361 million for installation and construction work carried out in Saudi Arabia.

Work on the project starts next month and completion is due at end-2012. The facility will start commercial operations in March 2013.

The tank farm is one of 13 projects awarded by Satorp to global players who, besides Rotary, include Japan's Chiyoda group and South Korea's Samsung Engineering.

Rumours that Rotary had clinched the project surfaced two weeks ago when Satorp announced the names of some of the winning bidders. The companies themselves were barred from giving details until the deal was officially signed this week.

Nevertheless, some local investment houses projected a major re-rating of Rotary's stock if it sealed the deal.

Chia Kim Piow, Rotary's chairman and executive director, said that the job was clinched through patience and perseverance. 'We are thrilled to have secured this contract,' he said. 'As in any new market, our experience in the Middle East has been fraught with challenges. Still, we have been making inroads slowly but surely.

'This win propels us to another level and will help reinforce our presence in the Middle East. We see tremendous potential and huge opportunities there.'

Market insiders said that the contract will fatten Rotary's earnin+gs. The company typically enjoys a gross margin of 18-20 per cent on such projects, which translates to an earnings boost of some $165 million for the next three years.

More importantly, the project makes Rotary a key player in the oil-rich Middle East - and Saudi Arabia in particular.

Rotary has had a presence in the region since 2006. In 2007, it invested $22 million in a fabrication and maintenance facility at Jubail Industrial City, affirming its commitment to a permanent presence there. The move seems to have paid off.

Last year, it secured an $11 million ethylene plant contract from SHARQ Eastern Petroleum at Jubail. Then came a US$62 million Saudi Kayan Petrochemical Co deal to build 24 tanks. And now, its single biggest contract to date - and a massive boost for a company which last year posted a $51 million profit on revenue of $520 million.

The Satorp deal quadruples Rotary's order book to almost $1.5 billion. Other major projects in hand include Rotary's $130 million Oiltanking Odfjell Terminal contracts and its $38 million deal to build Neste's bio-fuel plant at Tuas.