Business

Saturday February 16, 2013

Kuantan Port to make a big splash

By SHARIDAN M. ALI
sharidan@thestar.com.my


Bigger times ahead: Kuantan Port intends to attract bigger ships to utilise the newly expanded facilities. Bigger times ahead: Kuantan Port intends to attract bigger ships to utilise the newly expanded facilities.

WITH multi-billion ringgit worth of port expansion plan and industrial hinterland development, IJM Corp Bhd via its subsidiary, Kuantan Port Consortium Sdn Bhd (KPC), is expected to make a big splash in the maritime industry soon.

This is because the new capacity in the pipeline for Kuantan Port, a presently feeder port in the east coast of Peninsular Malaysia, would be easily taken up by the hinterland development that will utilise the port to import raw materials and export finished products.

IJM’s wholly-owned unit, Road Builder (M) Holdings Bhd, has entered into an memorandum of understanding (MoU) with China’s Guangxi Beibu Gulf International Port Group Co Ltd for the disposal of a 40% stake in KPC for RM310mil earlier last week.

Guangxi Beibu, as a strategic investor, together with IJM, is poised to take an active role in the expansion of Kuantan Port that will involve an investment of RM3bil.

Guangxi Beibu is currently operating four ports, namely Fangchenggang Port, Qinzhou Port, Tieshan Port and Beihai Port, in southern China.

The ports handled about 200 million freight weight tonnes (fwt) of cargo last year. Guangxi Beibu also has a track record of developing a fishing village into a port city.

On the hinterland, Guangxi Beibu plans to invest RM5bil in the development of an integrated steel plant, an aluminium processing plant and a palm oil refinery in the Malaysia-China Kuantan Industrial Park (MCKIP), the first industrial park to be accorded national status.

On top of this, Guangxi Beibu wants to invest in the oil and gas as well as petrochemical industry in the near future.

At this point in time, those ventures look like a well-mapped plan for Guangxi to establish a hinterland development and have some control in the maritime gateway. It is also suitable for IJM as it will enjoy a boost needed for Kuantan Port to enter the premier league of the port industry.

KPC posted a revenue of RM175mil and pre-tax profit of RM92mil which contributes 3.3% and 11.5% respectively to the IJM’s financial year ended March 31, 2012.

According to IJM chief executive officer and managing director Datuk Teh Kean Ming, Guangxi Beibu is a strategic investor to jointly develop Kuantan Port.

“Both parties need to seek independent professional advice on the valuation and shall negotiate in good faith to determine the final sale price to be mutually agreed by both parties.

“Based on preliminary valuation, IJM’s 40% stake in KPC is valued at RM310mil. The proceeds will be partially invested into Kuantan Port’s expansion,” he tells StarBizWeek.

Teh: ‘The expansion of Kuantan Port is to be done in two phases over a period of six years’. Teh: ‘The expansion of Kuantan Port is to be done in two phases over a period of six years’.

Apart from board and shareholder approvals, there are certain conditions that need to be fulfilled before the sale can take place as under the Privatisation Agreement dated Nov 22, 1997, government approvals are to be obtained as well.

60-year concession

Also, government approval is needed for the granting of a 60-year concession to the existing port and the new deep water terminal.

Further progress of the MoU hinges upon the successful joint-venture acquisition of 283.3 ha of industrial land located north of Kuantan Port to be facilitated by the state goverment where Guangxi Beibu is to introduce investors for a steel mill plant, an aluminium-processing plant and an edible oil processing plant.

The estimated time frame to sign the definitive agreement is within six months after the MoU.

Teh reveals that the expansion plan for Kuantan Port has already been crafted while waiting for the approvals.

“The expansion of Kuantan Port is to be done in two phases over a period of six years.

“Subject to the concession agreement being finalised, we expect to commence construction works for the first phase in the second half of this year and will take about three years to complete.

“The total development cost for phase one is RM1.1bil, whereby IJM’s equity investment will be about RM200mil,” he says.

Teh explains that the first phase of construction works will involve dredging to 16m deep, the construction of an additional one km of berth length and reclamation of 47ha.

“The phase two expansion will comprise dredging works to 18m in depth, another km of berth length and reclamation of 40ha.

“The commencement of the second phase expansion will depend on capacity utilisation factor,” he says.

Kenanga Research does not foresee any problem for IJM to fork out RM360mil for its proposed 60% equity in KPC to finance the capital expenditure.

IJM’s net gearing stands at 0.4 times with a cash balance of RM1.7bil and long-term borrowings of RM3.4bil as at the end of financial year 2012.

“Generally, we are positive on the sale as the collaboration with Guangxi will spur more activities at the port.

“On top of that, the proposed 60-year concession will be a positive for KPC’s future cash flow,” it says in a recent report that maintain a Market Perform call on IJM counter.

Commenting on the partnership with Guangxi Beibu, Teh says it will bring the best practices of port management as well as a wide network of clienteles that will enhance the capacity utilisation of Kuantan Port especially when the port’s capacity is increased with the development of a new deep water terminal.

It will be a sister port with Qinzhou Port of Guangxi Province.

Excited over the future of Kuantan Port, Teh says that with the development of the new deep water terminal, the capacity of cargo throughput will increase from 16 million fwt to 38 million fwt.

“Container handling will jump from the current 150,000 twenty-foot equivalent units (TEUs) to 1.5 million TEUs.

“It will also be able to cater for 200,000 deadweight tonne ships,” he says,

As at the end of financial year 2012, Kuantan Port handled 16 million tonnes of cargo and as at December 2012, a total of 12.4 million tonnes of cargo has been registered.

Alliance with Guangxi Beibu

Furthermore, Teh says this alliance with Guangxi Beibu will also spearhead the development of MKICP, which is only five km away from Kuantan Port.

“The park will boast high value industrial developments like steel mills, aluminium processing plants, edible oil processing plants and other high value industrial developments which will spur more traffic and cargo throughput to Kuantan Port,” he says.

Teh adds that import and export activities of the industries in that area will be served by Kuantan Port.

“Apart from that, this will also help spur further growth in the support industries and downstream industries in that area. Kuantan Port intends to attract bigger ships to utilise the newly expanded port which is deeper. This will eventually benefit the industries with lower costs due to economies of scale,” he says.

Kuantan Port is located on the east coast of Peninsular Malaysia and presently functions mainly as a feeder port.

It is also a gateway to Asean, Asia Pacific and the Far East.

Prime Minister Datuk Seri Najib Tun Razak launched MCKIP together with the Chinese People’s Political Consul­tative Conference of the People’s Republic of China chairman Jia Qinglin last week. Initial investment commitments of RM10.5bil has been locked in.

This is an addition to the RM38bil worth of investment in the East Coast Economic Region since 2007.

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