More on PECD

Previously blogged: How about PECD?

On Star Bizweek, a new twist was published: ( source )

• Saturday February 17, 2007
  
  New shareholder for PECD?
  
  Ahmad Zaki may emerge as substantial shareholder
  
  OVER the week, generally low-key PECD Bhd has been in the spotlight. There has been much talk of a new shareholder emerging, and several prominent names have been linked to the company, with a view to adding strength to PECD’s ailing fortunes.
  
  One name that has cropped up is that of construction company Ahmad Zaki Resources Bhd (AZRB). BizWeek understands that AZRB has conducted base-level negotiations with the shareholders of PECD, and may acquire as much as 29.6% in PECD, currently held by Peremba (Malaysia) Sdn Bhd.
  
  According to PECD’s latest annual report, the shareholders of Peremba are Tan Sri Mohd Razali Abdul Rahman who has 50% equity, Datuk Hassan Abas holding a 40% stake and Abu Bakar Mohd Nor with 10%.
  
  The price being bandied about is still unclear. PECD’s net asset per share as at end-September last year was about 55 sen, while its stock ended trading on Thursday at 55.5 sen.
  
  At its close on Thursday, the 29.6% or 88.8 million shares in PECD has a market value of about RM49.3mil. However, the acquisition price will also have to factor in PECD’s current losses and the fact that it is a controlling block of shares.
  
  It is also possible that AZRB may inject its wholly-owned oil and gas outfit Inter-Century Sdn Bhd, which has an agreement with Petronas Dagangan Bhd till the middle of next year to provide bunkering facilities in Kemaman Port in Terenggannu, into PECD for equity and conclude the deal via a cash and equity deal which is unlikely to tax AZRB. As at end-September last year AZRB had cash and deposits of almost RM140mil.
  
  Much of PECD’s appeal to AZRB could be from the former’s US$230mil contract in Sudan to build an export marine terminal for the Melut Basin Oil Development Project, which was given by among others, state-controlled oil major Petroliam Nasional Bhd (Petronas) which has 40% equity in PetroDar Operating Co, the concern which has the rights to explore for oil in south-east Sudan.
  
  This project has been a bane to PECD and the cost overruns, for which PECD is claiming some US$200mil (RM700mil), have dampened interest in PECD considerably.
  
  
  
  PECD’s dilemma
  
  When its shares were first traded on Bursa Malaysia, there was much expectation from PECD by the investing fraternity.
  
  It’s relatively long history as a construction player under the Peremba banner, and the many jobs abroad created quite a buzz among market players and the analysts’ fraternity alike.
  
  However from the first quarter of 2005, things took a turn for the worse. After a bad stint in Sudan, when the company inked a contract to build an export marine terminal which was plagued with issues and incurred heavy cost overruns and led to PECD’s fortunes taking a turn for the worse.
  
  This foray in Sudan has led to the company losing much of its appeal and leading it to bleed. For the nine months ended September last year, PECD suffered a net loss of almost RM38mil from RM675.2mil in revenue. For the corresponding period a year earlier, PECD raked in as much as RM16.6mil on the back of RM761.6mil in sales.
  
  According to the company’s notes, which accompany its financial results, the non-recognition of profits from the Sudan Marine Terminal project was among the reasons for the losses incurred.
  
  Despite the losses, PECD has a relatively strong order book of about RM1.4bil which should keep it busy till the end of this year.
  
  Two of the jobs recently inked include the RM500mil Dubai Al-Fattan Towers project and an engineering, procurement, construction and commission contract won with MMC Corp Bhd for RM133mil to build crude storage tanks at the Petronas refinery in Malacca.
  
  
  
  AZRB
  
  AZRB’s bunkering arm, Inter-Century, has been producing relatively good results. For the nine months ended September last year, AZRB posted a net profit of RM15.8mil on the back of RM322.8mil sales.
  
  According to the company’s notes which accompany its financial results, the oil and gas division contributed as much as 29% and 11% of pre-tax profits and revenue respectively.
  
  It is not clear if AZRB will be looking to rope all the oil and gas units under PECD while taking over the construction business of PECD.
  
  AZRB, as at end-September last year, had a construction order book of about RM1.3bil, largely made up of locally awarded projects. The significant project abroad is the company’s RM400mil contract to build the Alfaisal University in Saudi Arabia of which about a third has been completed, and the RM106mil IT Expressway deal in Chennai, India.
  
  For quite sometime now AZRB has been looking at penetrating the Middle East in a big way, but has yet to make much impact.
  
  Perhaps this tie-up with PECD would settle this issue. PECD, in contrast, has significant exposure to the Middle East market and has offices in various parts.
  
  To add to its muscle in securing jobs in the Middle East is PECD’s third largest shareholder (holding 6.1% equity) Investment Office LLC, which is a state-controlled entity and based in Dubai.
  
  But the main draw could be the size of the merged entity, which would have a consolidated order book of about RM2.7bil, and thus give the merged entity more clout in securing larger jobs locally and abroad.
  
  “It’s quite a clear-cut deal, PECD is in need of financial assistance, but is a (politically) well connected entity, and has the clout to ink jobs abroad. AZRB, on the other hand, is making great progress at home especially in home state Terenggannu, but does not have a significant presence overseas. So, it’s a marriage of convenience actually,” a source familiar with the deal says.