Scomi: No new risks from merger exercise

PETALING JAYA: Scomi Group Bhd does not foresee its proposed merger with Scomi Energy Services Bhd (SESB) and Scomi Engineering Bhd (SEB) to give rise to new risks which Scomi is not already exposed to.

In response to query by Bursa Malaysia, Scomi said this is because the group currently owns 65.65% of SESB and 72.33% of SEB.

However, Scomi said SESB’s businesses correlate with the conditions within the oil and gas industry, notably the level of activity in the exploration, drilling, development and production of oil and natural gas, which may be affected by factors beyond the group’s control, in particular fluctuations in oil and gas prices.

“Taking into consideration the challenging external environment, the group continues to explore to remain capital expenditure and asset light, and streamline operations across its businesses. Nevertheless, there can be no assurance that the protracted period of low drilling and production activities will not have a material and adverse effect on the businesses, financial position, results of operations and prospects of the group,” it noted.

SESB and SEB have business presence in several countries including Malaysia, Indonesia, Turkmenistan, Russia, Pakistan, Oman, Nigeria, India and Australia.

Scomi also highlighted that its exposure to credit risk arises principally from loans and advances to its subsidiaries, and financial guarantees given to banks for credit facilities granted to its subsidiaries.

“The subsidiaries, including SESB and SEB, in turn face credit risk in the event a customer or counterparty to a financial instrument fails to meet its contractual obligations,” it said.

As at March 31, 2017, SESB and SEB held a significant balance of trade receivables amounting to RM710.4 million and RM183.0 million respectively.

With crude oil price hovering at the range of between US$40 and US$60 per barrel, Scomi said there seems to be a gradual increase in capital expenditure by oil and gas majors and national oil companies.

“With this development, the prospects of the SESB are expected to be positive moving forward with possible increased drilling activities in the global oil and gas sector, barring any major geo-political developments,” it noted.

For SEB, it foresees opportunities fueled by growth in demand for mass public transportation and rising urban population across the world, notably in developing countries.

Scomi and SEB shares closed unchanged at 12 sen and 25.2 sen respectively today, while SESB’s shares closed half a sen lower at 10 sen.