Naim set to replenish order book in 2012, see improving sales

Posted on March 24, 2012, Saturday

LOGO

KUCHING: Naim Holdings Bhd (Naim) is poised to stage a comeback after its poor earnings performance in financial year 2011 with plans to replenish its order book and improve property sales.
“Naim’s order book stands at RM800 million which could last it up till the next two years, excluding the Kuching Flood project of RM1.2 billion,” according to a report by Kenanga Investment Bank Bhd (Kenanga Research).
It noted that management expected to replenish the order book by at least another RM450 million in financial year 2012.
The research house pointed out that Naim, through its joint venture partner, had just submitted the tender for the Klang Valley Mass Rapid Transit elevated project. The joint venture would enable both parties to leverage on each other’s expertise, thereby giving it a higher chance of winning the contract.

REMAINING ROBUST: Photo shows one of the construction projects by Naim. Its order book stands at RM800 million which can tide it over for the next two years, excluding the RM1.2 billion Kuching Flood project of.

“We understand that the construction of Samalaju industrial area is progressing quite well with a few global industrial players like Tokuyama and Asia Mineral having already committed to set up their production facilities there,” the report added.
Kenanga Research went on to explain that Naim had already developed quarters for industrial workers and was actively looking to develop another 800 acres of land for property investment ventures.
The report highlighted that Naim was, at present, partnering with Cahya Mata Sarawak Bhd (CMS) and Bintulu Development Authority (BDA) with the share of 39:51:10 equities on the second home programme for Korean and Japanese expatriates.
On the company’s property sales division, Kenanga Research believed that it had improved as compared to financial year 2011, especially during the month of the Chinese New Year in the first quarter of 2012.
“Management aims to achieve RM300 million sales in financial year 2012 via several more property projects launches like service apartment and street mall in Bintulu with gross development value (GDV) of RM310 million, service apartment and townhouse in Kuching with GDV of RM152 million and shoplots and landed properties in Miri with GDV of RM451 million,” said the research house.
It added that the group was also looking forward to develop more investment properties at their strategically located landbanks especially in Bintulu, which would provide the group a recurring source of income in the future following the success of its first retail mall project in Permyjaya which has the occupancy rate of 90 per cent with yield at eight per cent.
Naim’s investment in Dayang Enterprise Holdings Bhd (Dayang) had proven its fruitfulness as it had consistently contributed about RM30 million per annum for the past two years at the associate level. The research house believed it was a good buffer for Naim during downtimes.
“Moving forward, with a handful of contracts from Petronas, the contribution continue to come in steadily and we do not discount that Dayang will be in the front line to secure more Petronas contracts in the near term,” the report added.

Bank of America-Merrill Lynch and Goldman Sachs among beneficiaries of Malaysia deal boom

SINGAPORE/HONG KONG: In an otherwise dismal year for Asia's investment banking industry, a ray of hope has appeared from the most unlikely of places: Malaysia.

State oil company Petronas announced the country's largest-ever outbound takeover last week, offering to buy its Canadian partnerProgress Energy Resources Corp for $4.7 billion to gain control of vast shale gas deposits to supply lucrative Asian markets. The news broke on the same day Malaysian palm oil firm Felda Global listed its $3.1 billion IPO with a 20 percent pop.

Bank of America-Merrill Lynch, Goldman Sachs and J.P. Morgan are among the investment banks benefiting from the deal-making boom at a time when fees are tough to come by. A few key business relationships have paid off for BofA-Merrill, while Goldman's expanded business and J.P. Morgan's decades-long operation in Malaysia have been a boon for them.

Another $5 billion to $7 billion of Malaysian stock offerings are expected during the next year, turning the normally sleepy Kuala Lumpur financial hub into one of the most active deal centres in the world.

"I would imagine we're one of the few markets where head-hunters are paying any interest at the moment by virtue of the fact that things are happening," said Steve Clayton, senior country officer for J.P. Morgan Malaysia.

Clayton says that headcount at J.P Morgan Malaysia will increase over 50 percent within the next two years. The bank's franchise in the country dates back to 1964.

Driving the boom is a combination of government-led divestitures, election-year politicking and steady economic growth across Southeast Asia.

"There's an underlying ASEAN story," said a top Asia investment banker who did not want to be identified. "The orientation of investment banking fees was always directed more to China. The slowdown of IPOs in Hong Kong has acutely impacted that flow of business. So on a relative basis, ASEAN is seeing a bigger component of the fee pool."

While credit ratings agencies are concerned about Malaysia's budget deficit and the country is very exposed to any slowdown in trade finance given its sizable export market, economists remain positive as the local oil industry continues to churn out heaps of cash for the government.

The Petronas deal, one of the biggest outbound deals from Asia this year, will boost Malaysian M&A volume to $19.3 billion. Malaysia's share of Asian M&A volume doubled to 8 percent so far this year.

Aviva and ING's planned sale of insurance operations in Malaysia are among the country's other M&A deals expected to be completed sometime this year.

The burst of deal activity is also part of a trend that began a few years ago when Malaysia's state firms and privately owned companies started to venture abroad to tap growth outside their saturated domestic market.

The same momentum saw state investor Khazanah acquiring hospital groups in Singapore, Turkey and India. It is now injecting these assets into a business that is seeking to list in Singapore and Kuala Lumpur in a $2 billion deal this year.

Deutsche advised Khazanah on its acquisitions in Singapore and Turkey and is also a key adviser on the IPO.

"Malaysia is small. It's not like China or India or Indonesia in any way," said Abdul Jalil Abdul Rasheed, chief executive officer of Aberdeen Islamic Asset Management Sdn. in Kuala Lumpur. "That's why a lot of them are turning their attention abroad now."

EQUITY DEALS

At nearly $5 billion year-to-date, equity and equity-related deal volumes in the country are the most since at least 2000, according to Thomson Reuters data, and already equal the total for all of 2011.

J.P. Morgan is one of the top equity underwriters in Malaysia, and is No. 3 in estimated fee rankings behind the country's two dominant local banks, Maybank and CIMB, according to Thomson Reuters data.

Malaysia's largest pension fund is a J.P. Morgan client, which sources say is a key part of the bank's success there.

Goldman Sachs expanded its Malaysian business after obtaining both a fund management and corporate finance advisory license in late 2009.

BofA-Merrill scored the mandate to advise Petronas, the bank's fourth M&A advisory role with the oil giant, and it also has a role in the upcoming $2 billion IPO of Malaysia's IHH Healthcare.

Goldman does not have an advisory role in the Petronas deal, but stands at No. 2 in Malaysian M&A, having worked on four deals worth $3.9 billion.

Goldman was also the sole arranger for the $1.75 billion private placement of 1MDB Energy, a unit of Malaysia's government-owned investment company.

The deal was one of the biggest privately placed U.S. dollar bonds on record from Asia. Thomson Reuters publication IFR said in an article on the deal that Goldman may have made between $21.8 million to $30.6 million handling the sale, dwarfing the six-figure sums that typically come with such a trade.

If such a fee were earned, that would total the near equivalent of whatMorgan Stanley received in Asia debt sales for all of last year, according to Thomson Reuters data.

Goldman declined to comment on the 1MDB role, though Yusof Yaacob, chairman of corporate finance for Goldman Sachs Malaysia, did discuss business prospects.

"The Malaysian economy has been doing relatively well despite the global slowdown," he said. "We expect to see continued consolidation and restructuring in sectors including financial services and energy."

Investment bankers say whether the burst of activity in Malaysia is sustainable depends on whether deals in Hong Kong and mainland China pick up.

China's investment banking fees for domestically listed stocks almost quadrupled since 2007 to $2.2 billion while overall China investment banking fees, which include offshore listed companies, rose 25 percent to $4.4 billion, according to Thomson Reuters.

One equity capital markets investment banker said Southeast Asia's deal activity has, in past periods, picked up when China slowed down. - Reuters

KKB Group celebrates 50 years of success

GOLDEN ANNIVERSARY: Kho reading his speech during the anniversary dinner on Wednesday night.

by Alan Dexter, alandexter@theborneopost.com. Posted on July 20, 2012, Friday

KUCHING: KKB Engineering Bhd (KKB) celebrated its 50th anniversary late Wednesday night at Borneo Convention Centre Kuching, marking five decades of successful growth in the state.

“In 1962, we started with a capital of over RM2,000,” according to Dato Kho Kak Beng, the founder of KKB in his speech.

“In 1994, KKB had a paid up capital of RM15 million.

“Now, we have a paid up capital of RM128 million,” he said, noting how proud he was that the group has now grown into such a fine company over fifty years.

KKB was subsequently listed in the Main Board on June 21, 2007, starting with only five people during its initial year in 1962.

KKB now provides employment for over 700 people.

“I am proud to see my team growing with me, and today, I can say that my management and staff are prepared to meet new challenges and opportunities,” said Khom, acknoledging his staff as being the company’s biggest assets.

With the initiation of the Sarawak Corridor of Renewable Energy by the state government, Kho hoped KKB could contribute to this project by leading the next phase of the economic development in Sarawak.

“I would like to say thank you all for you hard work and dedication.

“We can all succeed together for another 50 years ahead,” Kho hoped.

Also present during the dinner was the Chief Minster of Sarawak, Pehin Sri Abdul Taib Mahmud, and his wife, Puan Sri Ragad Kurdi Taib.

Sabah bakal jadi terminal penyimpanan minyak terbesar

by S.CONNIE PEARL SUILconypearl09@gmail.com. Posted on July 13, 2012, Friday

KOTA KINABALU: Sabah bakal menjadi terminal penyimpanan minyak yang terbesar dan pertama di Kepulauan Borneo.

Pembantu Menteri Kewangan, Datuk Tawfiq Abu Bakar Titingan berkata projek Terminal Penyimpanan Minyak Sabah (SOST) bakal memainkan peranan penting dalam menyediakan kemudahan penyimpanan sebahagian besar dalam sektor minyak dan gas di rantau ini.

Katanya, kemudahan penyimpanan itu juga menjadi pusat transit dalam mencapai pasaran minyak antarabangsa.

“Secara logistik, Sabah terletak berhampiran negara pengeluar minyak terbesar seperti Indonesia, Timor Leste, Filipina dan paling penting ia terletak berhampiran dengan pengguna utama seperti China, Jepun, Taiwan, Korea, Vietnam dan Kemboja.

“Dengan pengwujudan SOST di Lahad Datu, tempat ini bakal memainkan peranan penting dalam penyediaan kemudahan penyimpanan minyak dalam sektor minyak dan gas.

“Secara tidak langsung, ini juga akan mewujudkan peluang kepada pengusaha minyak terbesar untuk mencapai pelanggan mereka di Korea, China dan pasaran lain di dunia,” katanya pada Majlis Menandatangani Memorandum Persefahaman (MoU) SOST antara Petro Asia Pac Sdn Bhd dan Fehm Group, OGPP Engineering Sdn Bhd dan Rayahan Sdn Bhd,” di sini kelmarin.

Menurutnya, aktiviti itu juga akan mewujudkan lebih banyak peluang pekerjaan kepada penduduk tempatan dan menyediakan perkhidmatan sokongan dalam industri minyak dan gas serta pembangunan wilayah ini.

Sementara itu, Pengarah Petro Asia Pac, Mustaza Basarudin berkata projek bernilai RM2 bilion yang mempunyai kapasiti penyimpanan sebanyak satu juta tan metrik itu bakal beroperasi penuh pada awal tahun 2016.

Tanjung Manis to be Oil Palm export center point for Sarawak

Oil palm the golden crop

Posted on July 13, 2012, Friday

MASSIVE: An aerial view of Tanjung Manis POIC.

TANJUNG MANIS: Sarawak will play a pivotal role in the future of the palm oil industry in the nation as it is the only state in the country that still has plenty of land for the industry to expand.

Senior Minister and Minister of Land Development Tan Sri Dr James Masing said that currently some 1.2 million hectares had been planted with oil palm.

This year the total revenue from the industry in the state is expected to be about RM9 billion, he added.

“By 2020, we are expecting to have two million hectares of oil palm, making Sarawak the single largest palm oil producer in the country,” Masing told a press conference after being briefed on Palm Oil Industrial Cluster at Tanjung Manis Development office here yesterday.

Present at the briefing were permanent secretary to the Ministry of Land Development Datu Jaul Samion, STIDC general manager Datu Sarudu Hoklai and STIDC deputy general manager Hashim Bojet.

Masing said palm oil has a bright future as it is considered the most preferred seed oil in the world.

“Compared to other seed oils, palm oil is the most environmentally friendly as we are replacing trees with trees,” he said.

However, he stressed that Sarawak in particular and Malaysia in general has to be more productive and more efficient in its oil palm industry if it were to compete against other oil palm producing countries.

“We need more research and development so that we can manage our oil palm industry well. We also must be able to contain diseases which can affect the industry,” he said referring to the recent outbreak Ganoderma root disease in the northern region.

He said currently the industry is employing some 70,000 people in the state, making it the most important industries besides oil and gas and timber.

Touching on the Tanjung Manis Palm Oil Industrial (POIC), Masing said the complex is expected to be fully operation next year.

Built at a cost of RM196 million, the facility would also handle other oil products for distribution as well as for export.

“This facility would contribute to the overall of the Sarawak Corridor of Renewable Energy (SCORE) project.

“And as oil palm is one of the ten major industries under SCORE, we are confident to make Tanjung Manis POIC as the hub for the industry especially as it has a huge hinterland,” added Masing.

Ling family-owned SOP gets RM 1.2 billion revenue from plantations in Sarawak

SOP sees RM1.16 bln revenue in FY11, strong performance on buoyant CPO prices

by Ronnie Teo borneo post June 26, 2012, Tuesday

KUCHING: Buoyant crude palm oil (CPO) prices provided strong support for Sarawak Oil Palms Bhd (SOP) for the financial year 2011 (FY11), registering a revenue of RM1.16 billion – a 60.2 per cent increase from the previous year’s RM728.1 million.

The group also recorded a profit before tax of RM361.9 million for FY11, an increase of 62.9 per cent from RM222.1 million in 2010.

According to SOP group executive chairman, Tan Sri Datuk Ling Chiong Ho in a statement released in line with its Annual General Meeting (AGM) in Miri yesterday, the strong performance was attributed to strong palm oil prices and higher FFB production throughout the group.

“The average price achieved for crude palm oil was RM3,232 per metric tonne (mt) and RM2,177 per mt for palm kernel,” he said. “Meanwhile, earnings per share of the group improved from 35.3sen to 55.9sen in 2011.”

During its AGM, SOP’s proposal for a first and final dividend of five per cent less tax at 25 per cent per ordinary share – amounting to an estimated RM16.29 million for FY11 – was approved and would be paid by July 23, 2012.

“The group’s fresh fruit bunch (FFB) production continued to increase from 673,260mt in 2010 to 839,785mt in 2011. This is a growth of 24.7 per cent. This increase is due to the increase of mature areas coupled with more young palms coming into prime production area.”

Ling added that SOP’s FFB yield per hectare increased marginally by 2.52 per cent to 20.37mt as a result of the dilution effect from its newly-matured areas.

Meanwhile, the group’s oil extraction rate (OER) decreased marginally from 21.23 per cent to 20.90 per cent. The executive chairman highlighted that this was the area which the management would continue to strive to improve this year.

In 2011, the group planted an additional 3,919 hectares of oil palms, thus further increasing the total area planted to 62,755 hectares out of a total land bank of 72,653 hectares.

“With 30.94 per cent of the planted area still immature, the FFB production is expected to increase over the next few years upon maturity of new planting areas,” he predicted.

Ling went on to reveal that the group’s fifth palm oil mill with a 60mt per hour capacity in Kemena, Bintulu is expected to be commissioned and be operational by next month.

In addition, the group’s sixth palm oil mill of 90 mt per hour at Baram, Miri is expected to be operational by the second half of 2013.

The group’s palm oil refinery and fractionation plant and kernel crushing plant are expected to be commissioned and operational by this month.

Going forward, Ling forewarned that like many other plantation companies, the group would be facing substantial increase in operating costs, particularly on the increase in salary and wages and a general increase in cost of operations.

“The present high export duty in Indonesia has caused heavy discounts on the prices of Malaysian refined palm products and thus squeezes on refining margin,” he said.

“Barring any unforeseen circumstances, the group is expected to achieve a reasonable profit in line with other plantation companies assuming palm oil prices remain at current levels,” he concluded.

Sarawak Shell gives RM 278 million Sarawak waters contract to Petronas subsidiary

MMHE secures RM278m contracts from Sarawak Shell

By Joseph Chin

KUALA LUMPUR: Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) has secured three contracts from Sarawak Shell Bhd worth RM278mil to build the topside, process module and jacket for its oil and gas operations.

It said on Wednesday its unit, Malaysia Marine and Heavy Engineering Sdn Bhd, had successfully bid for the F14/F29 project award which comprised of three structures by Sarawak Shell.

MMHE said the first was the procurement, fabrication and yard pre-commissioning of the F14DR-A topside, which would weigh 2,024 tonnes when completed.

The topside is an unmanned satellite drilling riser platform which would initially consist of three gas producing wells. The topside would have the flexibility to accommodate up to five gas producing wells.

The second is the fabrication of a process module, weighing 1,731 tonnes, which would be used to separate the gas produced by F14DR-A topside and F29 subsea system, and it would be installed on a Module Structure Frame deck level of the existing platform.

The third structure that MHB would fabricate is the F14DR-A jacket to support the F14DR-A topside. With piles and conductor, the entire jacket would weigh approximately 6,400 tonnes.

Ta Ann meraih keuntungan dari hampir sejuta hektar tanah di Sarawak

Ta Ann the top pick in plantation sector

Posted on June 20, 2012, Wednesday

KUCHING: Ta Ann Holdings Bhd (Ta Ann) is well positioned to tap the vast one million hectares (ha) of agricultural land reserves in Sarawak.

The company had 30,911ha of planted land and approximately 12,000ha of plantable reserves in Sarawak as of December 2011.

According to Maybank Investment Bank Bhd (Maybank IB) in its research report, Ta Ann’s land bank had grown at a compounded annual growth rate (CAGR) of 28 per cent since 2005. Armed with its strong balance sheet, the company could still increase leverage by RM200 million before exceeding a net gearing ratio of 50 per cent.

Traditionally a major timber player, Ta Ann had in recent years diversified and fortified its business model with its upstream palm oil business now the largest profit contributor at 77 per cent of 2011 profit before tax.

“Being a relatively young planter, Ta Ann only began its accelerated planting in 2004. Thus, its current young average age profile of five years old with 32 per cent immature estate is approching the exponential growth stage of fresh fruit bunch production,” said the research house.

“Ta Ann is poised to deliver a robust 18 per cent three-year forward CAGR in FFB growth. Its plan to plant 3,000ha per annum will bolster its double-digit FFB growth phase which is expected to last till 2017,” it added.

Despite the timber division’s relatively smaller earnings contribution, its plywood division which was highly exposed to Japan could benefit from Japan’s reconstruction demand post-2011 earthquake and tsunami.

“Potential divestment of its loss-making Tasmanian operations would be positive to timber earnings too,” Maybank IB pointed out.

Going forward, the research firm expected Ta Ann’s net profit to grow at 15 per cent three-year CAGR, mainly driven by its plantation growth. Its long-term growth catalyst would emanate from its maturing forest plantation that would boost its logs supply significantly after 2015 and enhance its logs extraction yield.

Currently, 32,265ha of its total forest plantation land of 313,078ha was planted.

“Ta Ann’s current valuation of 10 times 2013 price earnings ratio and enterprise value to planted ha of RM38,436 is unjustified given its transformation from a cyclical timber play into a more defensive oil palm plantation player with quality earnings growth,” Maybank IB stated.

“Ta Ann is our top pick of the plantation sector for we believe this undervalued stock is due for a re-rating, buoyed by its improved earnings quality and strong growth.”

Given that, the research house pegged Ta Ann’s target price at RM9 per share.

Hock Seng Lee given RM26m infrastructure contract from MID Sarawak

KUALA LUMPUR: Hock Seng Lee Bhd has clinched a RM26mil contract to build the infrastructure at Demak Laut industrial park in Kuching.

It said on Thursday it had received the letter of acceptance from the Ministry of Industrial Development Sarawak for the project.

The scope of works for the project included earthworks, sandfilling, water reticulation, drainage, road and associated works. The project would have to be completed by January 2014.

Hock Seng Lee is owned by the foochow Yu family with close ties to Datuk Robert Ryad Geneid.  Ministry of Industrial Development is under the control of Minister YB Datuk Amar Awang Tengah Ali Hassan.

Lau family-owned BLD Berhad makes nearly RM 2 Billion revenue from plantations in Sarawak

BLD sees 44 pct revenue jump on the back of robust CPO, FFB prices *new!

by Ronnie Teo, ronnieteo@theborneopost.com. Posted on June 21, 2012, Thursday

COMPANY PROGRESS: (From left) Lau, company secretary Alvin Lau and independent non-executive director Chong Chon Chee during the AGM.

KUCHING: Sarawak-based BLD Plantations Bhd (BLD) registered a a revenue of RM1.89 billion for the financial year ended Dec 31, 2011 (FY11), translating into a 44 per cent increase from RM1.31 billion recorded the previous year.

This increase was attributed to higher sales volume of 21 per cent as well as higher selling prices for palm oil products by an estimated 19 per cent, revealed BLD Group executive chairman Datuk Henry Lau during its Annual General Meeting (AGM) held yesterday.

It also saw a 63 per cent increase in pre-tax profit to RM125.76 million from RM77.07 million in the previous corresponding period.

“If you look at last year’s performance, a big part of the contribution of the increase in profits comes from good fresh fruit bunch (FFB) and crude palm oil (CPO) prices,” he said.

“Another part comes from BLD’s continuous efforts to expand activities over the years in terms of production, further downstream activities such as setting up refineries and at the same time, trying to improve our yields and reduce costs as far as possible.”

During the AGM, a final single-tier dividend of 14 sen per share for FY11 was also approved and will be paid on July 31, 2012.

In the financial year under review, the group had a total planted area of about 25,100 hectares (ha) of which about 93 per cent was in the maturity stage.

From this, the group produced about 359,900 metric tonnes (MT) of FFB for FY11 with an expectation that output would continue to grow at a sustainable pace as more oil palms reached maturity.

When asked on the plans for the remaining land bank yet unused, Lau affirmed that plans were underway for its development over the next five to seven years.

“So far, as the expansion is concerned, I think with the kind support of shareholders, we are able to retain some of the profits that we have accumulated to continuously expand our activities because we have a sizeable area yet unplanted. This will ensure the volume also increases over the years.

“This is dependent on the present economic situation. If the prices escalate, we will speed up the development. But generally, in the next five to seven years, we hope that we can complete the development of the areas,” he said.

Lau also affirmed that BLD was taking other measures to increase the group’s productivity, such as venturing further downstream. The group, which originally started as a pure plantation player, is now involved in palm oil milling, kernel crushing as well as refinery activities.

“For example, the refinery that we set up via Kirana Palm Oil Refinery Sdn Bhd (Kirana) – we were fortunate that we were able to register profits even though we were very new in the market as far as Kirana and oil refinery activty was concerned.

“In spite of fierce competition, we were able to achieve full production and even exceeded the production target and thus derived profits there. This is an ongoing process,” he outlined.

“We will continue to expand our planted area and also further processing activties in order to diversify rather than just continue our core plantation business.”

The expansion of this existing refinery via the installation of a second plant through Kirana was tentatively expected to commence in the last quarter of 2012 with an estimated RM51 million in expansion expenditure, he revealed.

The group’s palm oil mill and refinery plant, with 60MT of FFB per hour and 1,200MT per day respectively, operated at its installed capacity during the financial year under review.

Additionally, the group’s kernel crushing plant, with 450MT per day, operated at about 76 per cent of its present capacity during the financial year under review.

Meanwhile, the group’s second palm oil mill at the Kabang Land District in Sibu through Bintulu Lumber Development Sdn Bhd had commenced operations with a current processing capacity of 60MT of FFB per hour, Lau added.

BLD hopes to achieve a total land development area of about 27,000ha in 2012, of which about 90 per cent will be in the maturity stage.
“BLD is continuously in the process of exploring new avenues of income and cost reductions for the benefit of our shareholders and evolve to enhance our competitiveness in the market,” he said.

CMSB inks MoU for RM850m phosphate plant in Sarawak

KUALA LUMPUR: Cahya Mata Sarawak Bhd (CMSB) is teaming up withMalaysian Phosphate Additives Sdn Bhd for a proposed RM850mil integrated phosphate plant in Samalaju, Sarawak.

CMSB said on Thursday its unit Samalaju Industries Sdn Bhd had signed an MoU with Malaysian Phosphate Additives to hold talks about the proposed plant which would have an annual production capadity of 500,000 tonnes.

It said both parties might set up a special purpose vehicle to undertake the project. The indicative equity structure of the project company would see Malaysian Phosphate Additives holding a 60% stake and Samalaju Industries 40%.

"The project company shall undertake a feasibility study in respect of the project in order for Samalaju Industries and Malaysian Phosphate Additives to assess whether it is feasible to proceed with the project," it said.

Sarawak Government gets rating upgrade

Moody’s lifts the state’s issuer rating to A3 from Baa1

PETALING JAYA: Sarawak has received an upgrade for its issuer rating from Baa1 to A3 by Moody's Investors Service.

The upgrade is due to Sarawak's strong record of positive financial performance, including the generation of operating and financing surpluses over many consecutive years, which has contributed to the state's growing reserve levels.

In a press statement, Moody's concluded that the state had a “coherent strategy consistent with the A3 rating”.

“Principally, the setting aside of sufficient assets to retire its large amount of foreign currency debt at maturity, as well as the strategy of continuing to build reserves and utilizing caution with respect to additional borrowings all support the rating upgrade,” it said.

The Moody's review focused on Sarawak's strategy for debt management, sinking-fund arrangements and future borrowing plans.

It said that “such results reflect robust growth in commodities-related revenues and the state's prudent approach to fiscal management, which includes conservative budget projections and tight control over stable and predictable operating expenditures”.

The state's financing surpluses averaged nearly 30% of operating revenues from 2004 through 2011, with an excess of 20% in most of those years.

The rating takes into account the state's sizeable and rising debt burden, due largely to its assumption of contingent liabilities related to its ownership of a non-profitable semi-conductor plant in earlier years and more recently, due to large planned investments in infrastructure.

Currently, Sarawak's debt burden is estimated at 111% of revenues in 2011 following a large borrowing undertaken to attract industrial activity for the Sarawak Corridor of Renewable Energy.

Although the debt burden was offset by revenue growth and sinking funds, Moody's projected significant rise in the burden this year if the state proceeded with additional planned borrowings.

That said, Moody's pointed to the substantial liquid reserves, amounting to an estimated 186% of total direct and indirect debt last year, which provided an important financial cushion in support of Sarawak's elevated debt load.

“Such coverage could decline in 2012 if the state proceeds with additional borrowing, but will remain well in excess of the stock of debt outstanding. Furthermore, its reserves are conservatively invested in cash and short-term instruments held at a wide variety of Malaysian financial institutions,” it added.

Moody's further said that the new rating was unlikely to be revised upward anymore as it was now equivalent to Malaysia's rating and unlikely to exceed that.

Sarawak is the country's fourth largest state in terms of population, with 2.5 million inhabitants and the largest in terms of land area. Its economy is driven by rich resources like oil and gas extraction, forestry and crude palm oil. Tourism in Sarawak should not be underestimated too.

The state was first put under review for an upgrade by Moody's in November last year.