Man at the helm begins to turn MISC around (3816)

It's not an easy task to helm a shipping company in the current
environment where overcapacity and a sluggish market are pressuring
rates. Nevertheless, MISC president and chief executive officer Datuk Nasarudin Md Idris (pic) remains calm and optimistic in steering the company into calmer waters. Below are the excerpts of the interview.

[You must be registered and logged in to see this image.] Q: Will there be any more provisions for exiting the liner business?
To
date, we have made provisions of RM1.45bil in the last financial year
and another RM222mil in the first quarter. We do not foresee any
further provisions but we never know as dismantling a business is far
more difficult than starting a new business.
In the liner business, we had a total of 29 vessels in our fleet, 16 owned and 13 in-chartered.
How much have you gained from the sale of the vessels?
For
some vessels we made a profit and for some we didn't. On average, we
are slightly better than book value. If we have over-provided, we will
write it back. We hope what we have provided so far is sufficient.
Was there any sentimental value attached to the liner arm?
This
is one of the businesses MISC started with. However, at the end of the
day if you factor in our RM3bil losses over the last four years in the
liner business, this was a decision that we had to take for the greater
good of MISC. If we did not exit the liner business, it would have
dragged MISC further down as a whole, and we were not prepared to allow
that to happen. It was a tough decision that we had to make.
We
have offices in Australia, Japan, India, China and several agency
networks worldwide. Closing those agencies and offices was quite a
difficult move for us. Revenue-wise the liner arm had been big. In the
heydays, revenue was RM2bil. But if we look at the history of the liner
business in the past 20 years, we had more losses than profits.
What is the outlook for fabrication now?
It
is still very good in view of the many new projects Petronas wants to
do domestically. There's a renewed focus on domestic development as
well as on enhanced oil recovery, and this bodes well for the
fabrication industry.
Back to shipping, how many more vessels do you have on order and do you have to cancel any of them?
You'd have to foot a very hefty cancellation fee when orders are cancelled.
For
petroleum shipping, we have four Suezmaxes this year and two
aframax-sized Dynamic Positioning shuttle tankers which are contracted
on a long term (15 year) basis with Petrobras, as well as four VLCCs
scheduled for delivery in 2013.
In Brazil there are many
deepwater fields. The two aframax-sized Dynamic Positioning shuttle
tankers are not for exploration but will be used for shuttle runs from
the oilfield back to shore. We will take delivery of these two vessels
this year.
On the chemical fleet, we do not have any more newbuilds.
For LNG, we are seriously looking at a fleet renewal programme.
You also have a stake in NCB Holdings Bhd. Can you clear the air on whether you are exiting, like you did the liner business?
It's doing very well and has paid handsome dividends. It has been a good investment for us.
Are you looking into more investments like NCB?
For
the time being we have to sort out our own issues. MISC is a shipping
conglomerate. We have seven businesses after exiting the liner
operations and all of them are competing for funds for expansion.
Financial
resources are limited for any company. Because of that, we have to be
highly rigorous in evaluating the economics of new projects and
investments.
When do you expect to see light at the end of the tunnel for the company?
I
think from now, it will be positive in terms of our profitability. If
you strip out the provisions and impairments, we made RM500mil in core
profit before tax in the last financial year ended Dec 31, which was
only a nine-month period (due to the change in financial year end). I
wouldn't say we can match the years prior to that, but we hope to stop
making losses, and as we move forward, I believe we would be able to do
so after taking the hefty provisions.
So we should not expect anymore negative surprises this year?
I
think it will be a question of how much profit we can make. We are
confident of returning to the black unless the market turns bad.
You've been in the shipping business for long?
I've been on the board of MISC for quite a while, but became the CEO of MISC in the last two years.
It's a tough time to be in the business?
You can say it's the worst of times. But it's also a challenging period in the industry.
Will MISC participate in Petronas' floating LNG (FLNG) facility?
They have taken the final investment decision and the project is proceeding on schedule.
An
FLNG cost billions. If we have the capacity to invest, we would like
to, but it's a question of our ability to invest and to raise finances.
Tell us about your ability to pay dividends.
There
were no dividends last year. Shareholders are not happy if we don't pay
dividends, but it's about the capacity of the company to pay.
If
you look at our track record, we have paid dividends amounting to
RM6.5bil in the last 5 years with the exception of last year.
What is your outlook for the business?
In the case of shipping, we will likely see two more difficult years especially for the petroleum and chemical shipping.
As
for LNG, we will hold steady because it is very much on long term
charters. There are new opportunities that we must seek with Petronas
and with other LNG developers in the world.
As for Malaysia Marine and Heavy Engineering Holdings Bhd, I'm quite confident it would do better after the acquisition of the former Sime Darby Engineering yard.
What has MISC learnt from this episode?
The
downturn in the industry has adversely impacted many players. We call
it a bloodbath. Some people may say it was expected, given the spurt of
new orders three to four years ago when people were gung-ho about
building new ships.
What we are experiencing today is not
something unique to MISC. Most shipping companies are in dire straits
and that's the nature of the market.
We want to rebuild our
strength as a company, and we have to relook at our portfolio of
businesses to minimise volatility. For example, we may have to rely
more on term than on the spot market. That's exactly what we're doing
today with the two shuttle tankers in Brazil.
Arising from the
Macondo incident, there are also concerns about pollution risks in the
Gulf of Mexico. So a consortium comprising oil majors are building this
modular capture system that can help mop up oil spills.
We are
proud to be chosen to be part of this initiative and managed to secure
a 20 year contract for the 2 modular capture vessels (MCVs) which will
be used to mitigate oil pollution risks in the US Gulf.
We are
moving towards long-term contracts, but we cannot run away from the
fact that we are operating in a highly volatile environment.
Another
issue is to strengthen our balance sheet and cash flow so we can
undertake greater investments in the future. We have part of our
financial resources tied up in huge assets today in the likes of
Gumusut-Kakap, Asia's first deepwater semi-submersible floating
production system (FPS), which is slated for completion by early next
year and will only start generating income and cashflow by the later
part of 2013. Our capacity to borrow is very much dependent on our cash
flow.
If we have good cash flow, we have a bigger debt headroom,
thus we can borrow in order to invest in new projects. But if we are
cash strapped, our debt headroom shrinks, and we can't raise new
capital to invest even though there may be many good opportunities out
there.
As we move forward, we need to be more judicious in the
use of capital. We should be more rigorous in evaluating new projects
and time our investments well.
We do not have a crystal ball.
But companies who are able to invest at low asset prices would be more
robust and resilient to weather the storm during difficult times.