Petrol One plans for recovery

KUALA LUMPUR: Petrol One Resources Bhd, formerly known as Changhuat Corp Bhd, is banking on a recent joint venture and a fund raising exercise to return to the black by the end of its next financial year ending June 2012.

“In the next quarter we can potentially break even or may still be making some losses, but we will definitely be profitable by the end of our next financial year,” executive director Lee Wei Hong told a media briefing yesterday.

For 3QFY11 ended March 31, Petrol One recorded a loss of RM3.84 million compared to earnings of RM342,000 the previous year, while revenue shrank 15.9% to RM7.5 million from RM8.98 million. For the cumulative nine-month period, the company lost RM11.16 million on revenue of RM22.72 million.

Earlier this month, Petrol One’s indirect wholly-owned subsidiary Arus Demaga Sdn Bhd entered into an agreement with Thailand-based Nathalin Offshore Co Ltd (NOC), to establish a joint venture that will invest in a new floating storage and off-loading vessel to seek new jobs in the oil and gas sphere.

The joint venture seeks to acquire a second-hand storage vessel that may cost US$30 million (RM90.9 million) to US$35 million.

“We can’t secure a contract without a vessel, or do it the other way around so we are doing both concurrently. The joint venture is looking to secure new contracts and is in the process of identifying a vessel to purchase,” said Lee.

As part of the deal, Arus Demaga will swap one of its older vessels, the MT Taurus, with a new vessel of similar capacity provided by NOC, the MT Titan Gemini. The MT Titan Gemini will be chartered to NOC for a contract worth an estimated RM90 million spread equally across three years, on an annual renewal basis.
Lee: We will definitely be profitable by the end of our next financial year.

MT Titan Gemini will operate in Johor waters, where Petrol One’s second vessel, MT Hercules, is currently servicing a contract with Noble Clean Fuels Ltd worth an estimated RM29 million per year, for a five-year period on a renewal basis after 30 months.

With both vessels tied to long-term contracts, Lee expects Petrol One’s earnings to improve soon as it achieves a better utilisation rate.

Overall, the company via its JV with NOC plans to expand its current fleet of two storage vessels to four by end-FY12.

To rejuvenate its finances, Petrol One recently proposed a rights issue and private placement exercise that could raise RM50.6 million to RM62.7 million in fresh proceeds, of which around a third will be devoted to repaying bank borrowings and lowering the company’s interest cost.

Note that Petrol One’s total net borrowings stood at RM122.28 million as at March 31, which translates into a rather high net gearing of 3.6 times against its shareholders’ funds of RM33.98 million.

“Part of the proceeds raised from our rights issue is meant to repay some borrowings and lower our gearing ratio. Actually, the bulk of the debt we now carry is tied to our two vessels and the contracts they serve. The revenue earned from these contracts is more than enough to cover the debt,” said Lee.

On the monthly revenue generated by MT Titan Gemini and MT Hercules, Lee said a portion is used to repay the debt while the remainder goes towards capital expenditure and daily expenses for the vessels.

While Petrol One is focused on improving its financial position for now, Lee said the company may venture into land storage and expand overseas in the long-term.

“We are focused on catering for the Singapore market, which is one of the top three trading platforms after Europe and the Middle East. We may venture to Indonesia, or a location close to Singapore where the trading hub lies,” said Lee.

In early May, the son of former finance minister Tun Daim Zainuddin, Datuk Mohd Wira Dani Abdul Daim, entered Petrol One as a substantial shareholder after purchasing a 6.35% stake or 3.21 million shares in the company.

“He [Mohd Wira Dani] is quite keen as he sees a lot of potential in Petrol One. At this moment, he doesn’t play an active role. We are waiting for the completion of the rights issue before we can sit down to discuss his role in the company,” said Lee.

“After the rights issue, we will be more aggressive. The opportunity is already there for us,” he said.