27th June, 2016
Marine engineering firm, Benalec Holdings Bhd, which has the rights to reclaim land equivalent to half the size of Jurong, Singapore off the south-west coast of Johor, is going into the oil storage business through a joint venture with a large international logistics company.
Towards this end, Benalec has inked a memorandum of understanding (MoU) with the company last Friday, which it declined to disclose the details, to conduct a feasibility study with the view of building and operating a greenfield oil storage terminal project at Tanjung Piai Maritime Industrial Park (TPMIP) in Johor.
“It is our preliminary mutual understanding that this counter party shall be the majority shareholder of the project and the terminal would also be operated and branded under their trade mark,” group managing director and chief executive officer Datuk Vincent Leaw Seng Hai told StarBiz yesterday.
Under the MoU, the international firm would be the majority shareholder of the oil storage terminal, while Benalec was looking into the possibility of holding a minority stake.
Leaw said the oil storage facility would inevitably provide stable recurring income from storage leases, in line with the group’s strategy to diversify its business portfolio.
Last week Benalec received the approval from the Department of Environment to reclaim phase two and phase three totalling 2,407 acres for the development of TPMIP. The TPMIP is carried out by Spectrum Kukuh Sdn Bhd where Benalec has a 70% stake while the Johor crown prince Tunku Ismail Idris Sultan Ibrahim and Daing A. Malek Daing A. Rahaman owned the rest.
Approval for phase one of the project involving 1,080 acres had been approved earlier.
Benalec estimates the entire development of TPMIP covering 3,487 acres to have a gross development value of RM10bil to RM12bil over the next 15 years.
Leaw said Benalec had been in talks with several potential partners for the first tank storage facility to be set up at TPMIP over the last few months.
“Several parties have shown interests when the land at TPMIP have started to form above water earlier this year,” he said, adding that Benalec wanted to secure a strong brand name for its venture.
If Benalec gets a partner to build the oil storage facilities, it would be the second after Dialog Group Bhd that has started operating its deep-water oil terminal storage facilities at Pengerang last year with Vopak of Netherlands as its partner.
Despite the bearish sentiments on the oil and gas stocks, Leaw is confident that its TPMIP project can lift off due to the stimulated growth from the ongoing Refinery and Petrochemicals Integrated Development project in Pengerang (Rapid) and since its development was the only seafront land left available in the area within the Pengerang Integrated Petroleum Complex.
Leaw also said that they were able to undertake land reclamation works at cheap price, which allowed it to subsequently be competitive.
“We can perform our reclamation works at a relatively lower cost and at a much faster rate due to the closer sand source. This translates to a more competitive final selling price that will attract potential investors,” said Leaw.
The business model, he said, was viable taking into account a large international independent oil storage company that has succeeded over the years within the vicinity of TPMIP project and was now expanding.
With over 15 years of experience in land reclamation works, Leaw reveals that a majority of reclaimed land in Melaka were Benalec’s projects, in which the firm had to fund the reclamation cost from its coffers.
On the RM200mil Benalec recently raised from the issuance of Redeemable Convertible Secured Bonds in April 2015, Leaw said that the convertible bonds was intended to fund reclamation works in respect of lands to be reclaimed for which sale and purchase agreements (SPAs) or letter of awards have been entered into.
“For lands that we reclaim without SPAs in place, the funding would be from our internally generated funds,” he said.
As the TPMIP project was huge, Leaw expected the project to keep Benalec busy for the next 10 to 15 years.
Benalec was faced with a stumbling block last June when its agreement with partners had lapsed and there was no intention to pursue the matter, forcing it to call off its plans to build the petroleum hub in Tanjung Piai.
But it now seems to be braving the tides in this capital-intensive business, despite the mounting financial pressures faced by many oil and gas firms globally.
As of March 31, 2016, Benalec’s operating profit before changes in working capital has increased to RM47.22mil from RM31.26mil.
While TPMIP project’s proximity to Singapore was a plus point, Leaw said the near term target for TPMIP was to capture the spillover demand for oil, gas and petrochemical storage as well as other downstream service activities from multinational corporations (MNCs) operating there and provide a more cost-effective alternative to the firms.
“We understand that the storage terminals in Singapore have in fact been running at close to full capacity, and the current contago market has further fuelled the demand for storage.
“And Singapore currently faces shortage of land for expansion by these firms. Other ways of storage such as the Jurong underground rock caverns and floating structures have been built at high costs to provide solutions to the problem,” said Leaw.
Apart from the current focus of attracting bulk liquid terminal investments into TPMIP since this was already approved under its DEIA, Leaw foresees in the longer term demand for industrial warehousing and logistic services would be huge, as many LPG and LNG firms, and petrochemical storage terminals were likely to develop their businesses at TPMIP.
Oceancove Sdn Bhd is the major shareholder of Benalec, with 47.77% interest. Leaw and his close relatives are directors of Oceancove.