Scomi’s key to China market
New CEO is entrusted to break into Chinese oil and gas sector
LITTLE is known about newly appointed Scomi Group Bhd chief executive officer Sammy Tse Kwok Fai, who has been dubbed as the “key” for Scomi to unlock the oil and gas market in China.
The 55-year-old’s previous corporate position was executive director and CEO at Hong Kong Stock Exchange-listed EPI Holdings Ltd, which is involved in the exploration and production of oil and gas.
According to a Bursa Malaysia filing, Tse resigned from those positions in 2016 but continues to provide consultancy services to EPI.
A source says Tse’s task is to bring Scomi to a new market that is China, by leveraging on his extensive experience in the global oil and gas scene.
“While Scomi is able to cover a large scope, the specific segments of interest in China’s oil and gas industry are drilling waste management (DWM) and drilling fluids (DF),” he says.
According to a report by Grand View Research Inc, the DWM segment in China is expected to grow at a compound annual growth rate (CAGR) of 12.09% by 2025.
Meanwhile, it is believed that Scomi is one of the five companies appointed for a DF contract of up to 20 years, though the contract value has not been specified.
The five comprises three foreign and two local oil and gas services companies.
The market size of the DF segment in the next five years is expected to reach a high of US$2bil, and each of the five companies could hold a market share of 20% to 30%.
Scomi’s entry into China will also augur well for Scomi Engineering Bhd, following China’s opening up of its transportation segment.
“Scomi Engineering can particularly look into the monorail projects in China,” the source says.
Apart from that, Tse’s appointment could potentially bring a system of sound financial structure to Scomi and fresh capital being channelled into the group, going forward.
“Tse shall spearhead the consolidation of finances and build up a stronger balance sheet for the group.
“Scomi’s books was greatly impaired previously, then the business was restructured.
“The company is much leaner now, so the timing (for the new wave of change) is good,” says the source.
He adds that Scomi has the potential to see a turnaround in the next 12 to 18 months and will be equipped with better capital funding going forward.
Losing money
For the financial year ended March 31, 2018 (FY18), Scomi registered a net loss of RM332.08mil, further widening from the previous financial year’s net loss of RM165.65mil.
According to Scomi’s 2018 annual report, this was mainly attributed to the decreased activity levels in the global oil and gas industry and unutilised offshore support vessels, resulting in lower revenue.
The financial performance of the group was also impacted by the weakening of the Brazilian Real, Indian Rupee and US dollar, which incurred unrealised foreign exchange losses.
Another contributing factor was the impairment of assets, particularly the offshore support vessels in the Marine Services Division.
Scomi also notes that cash flow generation continues to be challenging due to the muted activity levels across the group and that it will focus on realising cash from better inventory and debtor management, whilst looking at an asset rationalisation and realisation exercise.
Then, there was a note from independent audit firm KPMG on July 31, which highlighted a material uncertainty related to the going concern of Scomi.
KPMG said that Scomi’s financial health, together with several other matters, indicated that a material uncertainty exists, that may cast significant doubt on the ability of the group to continue as a going concern.
In addressing the concerns of the independent auditor, Scomi responded and said it is pursuing all avenues to recover the claims over its project with Prasarana Malaysia Bhd, negotiating the repayment plan terms with the significant lender of its Line 17 Project, to be completed in the next three months, as well as pursue various fundraising exercises over the next 12 months to improve the group’s working capital. Cost optimisation
“With the realisation of the above, the company’s financial position is expected to improve and address the going concern issue.
“We will continue to focus on cost optimisation programmes as well as continuous product improvements and developments to remain competitive in each of the sectors we are involved in,” Scomi replies.
Tse was appointed CEO a week after being appointed as an executive director of Scomi Group on July 24.
His appointment comes after Shah Hakim Zainal had expressed his desire to retire from his role as CEO.
However, Shah Hakim has since been redesignated as a non-independent non-executive director.
According to the source, the transition was planned in line with the private placement of shares of up to 10% of Scomi’s issued share capital announced in June, which will see the emergence of new investors.
The exercise may raise gross proceeds of up to RM13.13mil under the minimum scenario and up to RM19.02mil under the maximum scenario.
In a Bursa Malaysia filing, Scomi had said the private placement was deemed as the most appropriate avenue of fundraising to address the group’s immediate short term working capital requirements with due regard to the relatively short implementation process.