Dialog unfazed by Pengerang investment

KUALA LUMPUR: Dialog Group Bhd said its midstream investment at RM9 billion Pengerang Deepwater Terminal will not affect the oil and gas firm's balance sheet and it has no plan to call for a fund raising exercise.
Speaking to reporters after the company's EGM here last Friday, its executive chairman Tan Sri Ngau Boon Keat said the funding will be from internally generated fund, equity conversion from the warrants and bank borrowings.
"Our net gearing right now is only 0.2 times, which we've a lot of capacity to gear up, so we're not going out for shareholders for rights issue and any placement at this stage," he explained.
He said the net gearing level will increase in the next three to four years to the range of between 0.5 times or 0.6 times, which he deemed is a comfortable level in line with the two investments that the group will embark on.
"If the business gives you good recurring income, why not (to have a higher net gearing ratio)," he added.
Worth noting is that Ngau had in February placed out a 1.7% stake in Dialog to certain institutional investors, but without disclosing the placement price.
Last Friday, Dialog received shareholders' approval for the capital injection into Pengerang Terminals (Two) Sdn Bhd and Pengerang LNG (Two) Sdn Bhd, with its capital expenditure commitment of up to RM2.6 billion.
Dialog owns a 25% stake in the two companies respectively. Its joint venture partners include PRPC Utilities and Facilities Sdn Bhd, Vopak Terminal Pengerang BV and the Johor state government.
The estimated project cost of Pengerang Terminals is expected to be RM6.3 billion and is expected to be commissioned by 2019, while RM2.7 billion Pengerang LNG is slated for commercial operation by 2017.
Upon completion, the two projects will increase the group's storage facility from 2.3 million cubic meter to 4.2 million cubic meter.
Ngau said low oil prices bode well to the midstream and downstream operations as it will lower the costs of processing, manufacturing and production of petroleum and petrochemical products.
"When oil prices drop sharply, traders will buy the oil and store to wait for oil prices to rebound, so the demand for storage becomes more and good for our storage business.
"When one-third (upstream) not so good, but we got another two-third (midstream and downstream), so overall we're still OK," he added.
Despite that, Ngau said the group will still invest in the upstream segment to achieve long term growth.
He decline to give any projection for the oil prices, except to say an oversupply glut is a key factor in keeping the oil prices at low level.
For 2015, he expects higher revenue contribution from the midstream and downstream segments as the upstream operation will be affected by the declining oil prices.
"We see 20% (revenue contribution) from upstream and 40% from midstream and downstream each," he said.
Dialog's net profit rose 13.65% to RM129.65 million for six months ended December 31, 2014, from RM114.08 million in the previous corresponding period.