Petronas in talks with oil majors for petrochemical tie-ups

KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) is in talks with several global oil majors including Shell and Exxon Mobil to develop petrochemical plants within its US$20bil refinery complex in Johor, two sources with direct knowledge of the matter said.

The national oil company was also talking to Japanese firms Itochu Corpand Mitsubishi Corp as well as to Dow Chemical Co – the largest US chemical maker – as it sought to tap surging Asian demand and diversify its earnings, the sources told Reuters.

Petronas is expected to make a decision on the partnerships by mid-2012, which signals it is quickly moving beyond the feasibility stage of the project.

“Petronas is getting a lot of interest for the joint-venture undertakings,” said one source who declined to be identified as the talks are ongoing.

“They have moved to the basic engineering and design stage and after this, the tendering process for building the complex will start,” the source added.

Petronas, Shell and Mitsubishi officials in Malaysia declined to comment. Itochu, Dow Chemical and Exxon Mobil were not immediately available to comment.

Petronas first unveiled the Refinery and Petrochemicals Integrated Development (RAPID) project in May and has said the complex would be commissioned by end-2016, which both sources said was on track.

The project is key to Petronas’ plan to join the likes of India’s Reliance Industries in grabbing a larger share in the US$395bil global market for specialty chemicals – high-value raw materials used in products from diapers to higher performance tyres and LCD televisions.

“In terms of markets for petrochemicals coming from RAPID, Petronas is aiming for Myanmar, Bangladesh and parts of the subcontinent,” said a second source. “The potential is there as these are huge markets or in the case of Myanmar, just opening up.”

The RAPID project will include a 300,000 barrel-per-day refinery that produces naphtha, gasoline, jet fuel, diesel and fuel oil.

The first source said the crude feedstock would come mostly from Petronas’ equity projects in Sudan, Chad and eventually Venezuela instead of Malaysia’s own higher quality and expensive crude, domestic production of which is slowing.

The crude feedstock from Petronas equity projects will also be channelled into the petrochemicals and polymer complex, including a three-million-tonne per year naphtha cracker and petrochemical derivatives facility focusing on synthetic rubber.

“Over one million tonnes will be for ethylene and propylene and the rest for high grade specialty chemicals,” said the first source.

“Synthetic rubber is a big thing. Nearly 90% of a tyre is made of synthetic rubber because natural rubber production is declining in Asia, so there is an opportunity for Petronas,” the source added.

The RAPID project gives Petronas’ downstream operations a better chance of staying afloat in times of economic downturns and poor margins as it allows Malaysia’s only Fortune 500 company to tap into its global feedstock sources, analysts say.

“From a Petronas perspective, there is vertical integration opportunity,” said Andrew Wong, lead analyst covering Petronas at Standard & Poor’s in Singapore.

“I think the expectation for a recovery in the petrochemical sector in 2011 did not quite happen due to the external factors and there is concern whether the project will come onstream at a good point in time of the global economic cycle,” he added. — Reuters

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GIC connection may have given Sunway a leg up

Purchase of Iskandar land for RM25 psf is cheaper than recent deals in the area

By PAULINE NG
IN KUALA LUMPUR

THE Government of Singapore Investment Corporation (GIC) is believed to have played a significant role in Sunway Bhd's acquisition of 691 acres of land in Iskandar Malaysia for RM745 million (S$305.1 million) or RM25 psf, a transaction viewed as beneficial since it is cheaper than recent land deals in the area.

Analysts were mainly upbeat about the move although somewhat taken aback by Sunway's aggressive foray into the special economic zone.

'We are positively surprised by the size of the land,' CIMB said in a report yesterday, noting that the plot in question is the biggest for property development in Medini to-date.

Another broker, Hwang DBS-Vickers, noted its prime location 'at the southern-most tip' of the node. With infrastructure mostly in place, it will take only five to 10 minutes to drive to the Second Link.

This makes its RM25 psf cost even more impressive, observed Hwang analyst Chong Tjen San, especially when compared to recent land deals of RM38-RM65 psf. 'In our view, GIC's 12 per cent stake in Sunway helped consummate this landmark deal,' he said.

Seen more as a partner now, GIC became a shareholder in the wake of the Asian financial crisis of 1997-98 when Sunway founder Jeffrey Cheah sold equity to raise cash. Mr Cheah remains the biggest shareholder, holding nearly 48 per cent.

Already established in the central and northern regions of peninsular Malaysia, Sunway's entry into the Medini zone - albeit in joint venture with Malaysian sovereign wealth fund Khazanah Nasional - will strengthen its presence in the south.

Moreover, its partnership with both GIC and Khazanah could prove advantageous to its planned mixed development. To be completed over 10 years with 65 per cent residential and 35 per cent commercial components, the project has an estimated gross development value of RM12 billion.

Mr Chong believes the implied pricing of RM400 psf for the residential portion - and some 15-20 per cent higher for the commercial portion - is conservative given its prime location. If earmarked as 'an internationally recognised low-density development with a plot ratio of 1x', it would amount to only a fifth of similar developments in Singapore.

Moreover, UEM Land's recent luxury condo sales saw much higher average prices of more than RM700 psf.

However, Sunway Iskandar is not without risks. The increasing number of developments in Medini - as well as in other parts of Iskandar - is a cause for some concern.

Sunway Iskandar would be located next to a RM3 billion wellness township mixed development on 210 acres at Medini Central by E&O, in joint venture with Khazanah and Temasek Holdings.

RHB Research also observed that the high-end projects would start at about the same time - end-2012 or early 2013 - and aim for the same target market - mainly foreign buyers. Competition will also come in the form of other Malaysian builders in Medini, including UEM Land, WCT and Bina Puri.

Under the deal with Khazanah, Sunway will own an initial 38 per cent of the joint venture company and by additional equity subscriptions increase its stake to 60 per cent in 54 months.