In the crosshair - Sime Engineering targets to take control of Ramunia
The Star(StarBiz)
23 September 2006

In recent months, there has been a deluge of good news from Sime Engineering Bhd. Yet, there has been a sense, particularly among the investing fraternity, that there is something bigger looming in the horizon for this 70% owned subsidiary of Sime Darby Group.

That hunch may soon be proven right on track as industry sources say Sime Engineering plans to acquire listed oil and gas company Ramunia Holdings Bhd in a deal worth over RM700mil. A board meeting has been scheduled for early next week to discuss the plans to acquire Ramunia and sources say, an announcement can be expected soon after.

The plan as it stands, says a source, will involve Sime Engineering proposing to acquire a 50.8% interest in Ramunia currently held by Ramunia Energy and Marine Corp Sdn Bhd, a privately-controlled firm of Datuk Azizul Rahman Abd Samad, chairman of Ramunia. The offer price per share for the stake is RM1.20.

The acquisition will trigger a mandatory general offer for the outstanding shares of Ramunia, which Sime Engineering will undertake, also at RM1.20 per share, which represents a 14% discount to Ramunia’s share price which finished on Thursday at RM1.39.

Sime Engineering will also make an offer of 65 sen per warrant for all outstanding warrants, RM1.20 per irredeemable convertible unsecured loan stocks (ICULS) for all outstanding ICULS and RM1.20 per irredeemable convertible preference shares (ICPS) for all outstanding ICPS is Ramunia.

According to Bloomberg, Ramunia Holdings has about 238mil outstanding warrants, 164 million outstanding ICULS (expiry on December 2007) and 100.6 mill outstanding ICPS (expiry on December 2009)

Ramunia warrants, ICULS, and ICPS closed trading on Thursday at 84.5 sen, 98 sen and 69.5 sen respectively on Thursday.

If it materializes, the entire exercise will cost Sime Engineering about RM750mil.

Sime Engineering as at end June this year had as much as RM33.3mil in cash, bank balances and deposits while its parent Sime Darby has a healthy kitty of RM2.9nil (as at end June this year).

There is a good reason for the acquisition of Ramunia by Sime Engineering. Apparently, Sime Engineering may clinch a huge fabrication contract, which on its own, it may not be able to completely undertake. With Ramunia under its umbrella, that will no longer be an issue.

“It (Sime Engineering) either has to turn down a lucrative contract or expand. Ramunia is also involved in fabrication. It has a (wholly owned) unit Ramunia Fanricators (Sdn Bhd), which is a competitor to Sime Engineering. So, the acquisition in light of this contract makes sense,” says the industry source.

Sime Engineering, BizWeek understands, has bid for some RM3bil worth of jobs to add on to its current bursting order book of RM2.4bil. Sime Engineering officials have also stated that the company is looking to ink an additional two large jobs by year-end.

In late July, Sime Engineering announced that its 70% unit, Sime Darby Engineering Sdn Bhd, had been awarded a RM1bil contract for the engineering, procurement, fabrication, testing and pre-commissioning, load-out and sea-fastening, transportation and offshore installation of the Bunga Orkid-A Central Processing Platform, by Talisman Malaysia Ltd, in late July. The company is also playing a lead role in the building of the massive Bakun Dam project in Sarawak.

Ramunia Holdings has an order book of about RM900mil, but it was recently reported that the company has bid for as much as RM5.3bil worth of jobs, including a US$460mil (RM1.6bil) contract for a central-processing platform in the Gulf of Thailand, and the fabrication of structures in India.

It has also been reported that by next year, Ramunia Holdings will bid for a further RM12bil worth of jobs.

“It (Ramunia) is a company with a lot of potential. There are tremendous growth prospects in the oil and gas sector globally. Besides at the price offered, the owners of Ramunia do walk off with a profit as well,” the source adds.

Ramunia took over the listing status of Sabah Shipyard Bhd in January 2005.

The company’s initial public offering was at a mere 50 sen. Since then things have picked up at Ramunia.

Standard & Poor’s Equity Research forecasts that Ramunia Holdings’ sales will grow by 70% in the year to October 2006 on the back of RM30.5mil net profits.

For the first half ended April 2006, Ramunia posted a net profit of RM6.2mil on the back of RM84.4mil in sales, turning around from a net loss of RM34.5mil on RM48.7mil sales in the previous corresponding period.

In its notes which accompany its financials, Ramunia says: ”Based on the order book of the group together with good prospect of increasing the order book, the group is confident of achieving good operating performance in the forthcoming quarter and the financial year ending Oct 31, 2006, barring unforeseen circumstances.”

Since its flotation exercise in early 2005 on the second board of the Bursa Malaysia, Ramunia has generated much excitement with its stock although the share price has fluctuated somewhat, trading between RM1.02 and RM1.59.

Early last month, the company announced that its fabrication unit had been awarded a RM120mil contract by estate controlled oil major Petroliam Nasional Bhd (Petronas).

Ramunia is also eager to expand its fabrication business. The company has proposed to acquire an 80 acre fabrication yard for RM15mil cash, which will double its capacity and transform Ramunia Holdings into the country’s largest oil and gas fabricator.

Sime Engineering started out as a tyre manufacturer and was previously known as DIMB Bhd. Since then Sime Engineering has transformed itself into the oil and gas unit of Sime Darby, specializing in fabrication works.

The company ahs been among the star performers in Sime Darby’s huge stable of companies, For the year ended June 2006, Sime Engineering chalked up profits of RM20.5mil on the back of RM1.2bilin revenue, which is a stellar turnaroud from a loss of RM47mil from RM1.2bil in turnover.

Losses incurred in FY05 were a result of cost overruns at the Bakun Dam project and strong steel prices which ate into the company’s margins.

On the prospects for the current year, Sime Engineering said,”After taking into consideration the size of the order book and business activities of the various operations and barring any unforeseen circumstances, the board expects the group’s results to be better for the new financial year.”

Sime Engineering has been making waves abroad and as much as 40% of its current order book is from jobs abroad in Brazil and Qatar largely.

Perhaps the writing was already on the wall, late last year, Sime Engineering’s managing director Mohd Shukri baharom had indicated that the company had plans of making acquisitions both locally and in the Asia Pacific region as part of its expansion plans, but had not given any details.