Business

Thursday May 14, 2009

Sime offer will solve a lot of Ramunia’s problems

By ERROL OH


KUALA LUMPUR: Lembaga Tabung Haji, the second largest shareholder of oil and gas player Ramunia Holdings Bhd, is in favour of Ramunia disposing of its fabrication assets and liabilities as a way to stave off financial distress.

The fund is hoping that with the proceeds, the loss-making Ramunia can fare better by entering another business.

Last week, the Ramunia board of directors accepted Sime Darby Bhd’s offer to acquire Ramunia’s business and undertaking for RM232mil provisionally. The completion of the deal is subject to the agreement of the Ramunia shareholders, among other things.

Md Noor A Rahman ... ‘The deal is good'

Tabung Haji chief investment officer Md Noor A Rahman told StarBiz that the fund saw no reason to reject the Sime Darby offer. “The deal is good because it will solve a whole lot of problems for Ramunia,” he explained.

According to Md Noor, the problems included tight working capital, halted orders and high staff turnover, which largely stemmed from the global financial crisis and the scrapping of the proposed reverse takeover (RTO) of Ramunia by MISC Bhd.

He added: “A lot of deals have been aborted because the economy had collapsed. The MISC RTO was one of them. Because of that, Ramunia couldn’t get loan facilities from the bankers.” When MISC announced last November that it would not go ahead with the exercise, it cited “unsatisfactory due diligence findings”.

Ramunia reported a net loss of RM287mil for the financial year ended Oct 31, 2008, as compared with a net profit of RM20mil the year before. For the first quarter of the current financial year, the company sustained a net loss of RM5.8mil.

Sime Darby made its offer for Ramunia’s business and undertaking on May 4, via wholly-owned Sime Darby Engineering Sdn Bhd (SDE). The assets and liabilities that will be acquired will be determined following a due diligence inquiry.

Of the RM232mil price tag, RM46.2mil will be paid in cash. Ramunia will get the rest in the form of a 20% stake in the enlarged SDE.

There had been speculation that Tabung Haji would oppose the deal because the Sime Darby offer valued the Ramunia shares at a level significantly lower than the fund’s average investment cost in Ramunia.

Tabung Haji owns close to 30% of Ramunia’s paid-up capital. The controlling shareholder is chairman Datuk Azizul Rahman Abd Samad, who (along with his brother, Ahmad Rizal) has a direct and indirect interest of just over 33%.

Tabung Haji became a substantial shareholder in Ramunia on Nov 2, 2007, when it acquired a 5% stake. On that day, the counter closed at 99 sen.

Since then, the fund had steadily increased its investment in Ramunia, in a period when the shares were mostly trading within the RM1.20-RM1.40 band. Tabung Haji’s last transaction in the stock was a disposal on Nov 27 last year, two days after it had been announced that the MISC RTO had been called off.

Following that development, the Ramunia share price plunged and spent the next five months mostly below the 40-sen mark. The current rally has lifted the share price and Ramunia ended trading yesterday at 69 sen.

Md Noor declined to reveal how much Tabung Haji had spent on its Ramunia shares.

“The paper loss is there. As the CIO, I look more at the bigger picture. I cannot have one company that’s down to affect me. As long as the bigger picture is stable and is generating profits, such as our plantation and property businesses, as well as some of our other listed companies,” he said.

“Overall, Tabung Haji’s investments are still in good shape. This (the investment in Ramunia) is probably the one black sheep. Having said that, as CIO, I take full responsibility for it, even though it’s one company.”

He said the fund had invested in Ramunia after doing its legwork on the oil and gas industry, including going on company visits and attending conferences.

“Everybody we met – whether the experts or the oil and gas companies – was saying bullish things about the industry,” he added.

“When we looked at Ramunia, we were very excited about its fabrication yard (in Pasir Gudang, Johor) because of the location and size. The one thing I remember is when we asked investment banks and analysts about oil and gas, they said there was not enough yard capacity in this part of the world.”

He explained: “This was the very reason we purchase the Ramunia shares. It was just unfortunate that the economy and market collapsed after that. And then there were cancelled orders for vessels and platforms around the world.”

On the fact that Ramunia would no longer have the yard if the Sime Darby deal went through, he said Ramunia would still have 20% of SDE. In addition, its debt burden would be lightened considerably.

Md Noor added that it was unlikely that Ramunia would distribute the SDE shares to the Ramunia shareholders because SDE was not listed.

“With the RM46mil cash, the management has to think of a new core business,” said Md Noor, adding that it would be up to the Ramunia management to defend its new business direction when it seeks approval from the shareholders.

It may also be timely for Tabung Haji to seek board representation in Ramunia. Md Noor said that in many cases, the fund had requested for board membership after achieving a certain level of shareholding in listed companies and would no longer buy more of their shares.

 
SIME :  [Stock Watch]  [News]
RAMUNIA : [Stock Watch] [News]


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