Singapore Corporate News - 10 Apr 2008

Skybus blow not serious: ST Aero

SINGAPORE Technologies Aerospace said yesterday that it would not be seriously impacted by the financial collapse of US-based budget airline Skybus Airlines, a point generally supported by analysts.

The low-cost carrier filed for bankruptcy on Monday, effectively wiping out a US$635 million 12-year contract from the books of the Singapore Technologies Engineering (ST Engg) subsidiary.

'Skybus is a significant customer, but we are not impacted greatly by their Chapter 11 filing,' said an ST Aerospace spokeswoman.

Skybus filed for Chapter 11 bankruptcy on April 7, citing the challenging operating environment and soaring aircraft fuel costs.

The US$635 million contract was awarded by European aircraft manufacturer Airbus to ST Aerospace's US facility, ST Mobile Aerospace Engineering, in late 2006. The maintenance and engineering agreement was to provide support for Skybus and its fleet of up to 66 A320 aircraft.

'Work commenced for Skybus when it launched its operations in mid- 2007,' ST Engg said in a release.

'We had a line maintenance deal, and bought some equipment,' said the ST Aerospace spokewoman. 'But the investment is pretty insignificant in the scheme of things.'

Commenting on the impact, Morgan Stanley analysts said they saw 'near term weakness' as earnings from ST Engg's aerospace arm 'look vulnerable in the current challenging environment'.

But the Morgan Stanley analysts reckon ST Engg's earnings should not be greatly affected as it could have lost money for the first two years of the contract. But it noted that 15 per cent of the company's aerospace revenue comes from low-cost carriers, mostly in Asia, and which like Skybus are vulnerable to rising fuel costs. Skybus is one of four US budget airlines that have ceased operations recently.

ST Aerospace accounts for about 40 per cent of ST Engg's orderbook, which stood at S$9.5 billion at the end of last year. So the removal of the S$1 billion deal would scale the orderbook down to S$8.5 billion.

In a note to clients, DMG & Partners analyst Terence Wong said: 'The only impact will be on the order books, which is expected to fall from S$9.3 billion to S$8.3 billion. The company is likely to make up for the vacuum in the near to mid-term, given the healthy outlook for the global MRO (maintenance, repair and overhaul) industry.'

A Macquarie research report noted that 'even in steady state, the contract would have contributed US$53m in revenue', a small part of ST Engg's S$5 billion-plus annual turnover.

It said that consolidation in the US airline industry would benefit MRO shops such as ST Aerospace. They concluded that 'the Skybus bankruptcy does not change ST Engg's business fundamentals given the diversified earnings base'.

Despite the setback, analysts remain upbeat on the company's prospects.

Morgan Stanley said the company was 'not cheap but it is one of the most defensive stocks' and maintained its 'overweight' call. Macquarie also maintained an 'outperform' on the stock.

ST Engg closed trading yesterday at S$3.52, up seven cents or 2 per cent. ST Aerospace is the world's largest independent MRO company. Its key customers include FedEx Express, UPS, Continental, Delta Airlines, JAL, ANA, Xiamen Airlines, Juneyao Airlines, RSAF, and the Brazilian Air Force.

Jade jumps 58% as curbs are lifted

Jade Technologies shares shot up as much as 75 per cent yesterday as normal trading in the stock resumed. The counter hit an intraday high of 10.5 cents before closing at 9.5 cents, 3.5 cents or 58.3 per cent up.

On Tuesday night, the Singapore Exchange (SGX) lifted a restriction on short-selling of the stock, saying that trading had been orderly. The exchange had declared Jade a 'designated security' on Sunday after Jade's group president Anthony Soh aborted a takeover offer at 22.5 cents per share, prompting fears of a heavy sell-down. The circumstances of the take- over offer are being investigated by the Securities Industry Council.

US investment bank Merrill Lynch could now be Jade's single largest shareholder after it revealed in a regulatory filing that it had taken over 256.8 million shares through enforcement, making up 26.5 per cent of Jade, from a 'prime brokerage client' on March 27. That client is believed to be failed Australian broking house Opes Prime. ANZ Bank and Merrill Lynch were its secured creditors.

Merrill also said it sold 95.3 million shares on April 1, confirming a previous news report. This contributed to a massive 196 million shares changing hands that day. Merrill Lynch's direct holding in Jade was 16.66 per cent as at Tuesday.

Dr Soh, previously the single largest shareholder with about 46.5 per cent of the company, may now own just 16.06 per cent after 295.5 million Jade shares equating to about 30.5 per cent of the company were transferred to Opes Prime as security for margin loans. Many of these shares may then have passed to Merrill Lynch on March 27.

At least another fund is now an owner of Jade shares. On Tuesday, London-based Omni Partners said it owned 6.2 per cent of Jade after three funds it manages bought 49 million shares in the open market on March 31.

Bio-Treat to fight suit by Abax Lotus

BIO-TREAT Technology intends to fight a US$4.2 million suit by Hong Kong-based fund Abax Lotus.

Responding to an article, 'Abax Lotus sues Bio-Treat for collapse of credit deal', in BT yesterday, the China-based wastewater treatment company said it intends to 'vigorously defend' itself against the allegations made by Abax Lotus in a complaint filed with a New York court.

According to court documents obtained by BT, Abax Lotus, a fund run by Abax Global Capital, sued Bio-Treat Technology and its subsidiary guarantors to recover US$4.2 million allegedly owed to it as damages for the termination of their credit agreement as well as other associated expenses.

In its complaint with the New York State Supreme Court on March 10, Abax Lotus alleges that the credit agreement signed on Jan 23 collapsed because Bio-Treat failed to follow through on terms agreed and violated its commitments under the agreement.

Bio-Treat has denied these allegations in a reply to the complaint through its legal counsel Duane Morris LLP dated March 31.

'The company is of the opinion that the alleged claims made by Abax Lotus and its outcome, even if adverse to the company, will not have any material adverse impact on the financial results of the company for the financial year ending 30 June 2008,' Bio-Treat said in a clarification statement to the Singapore Exchange yesterday.

An SGX spokesperson told BT that SGX was informed by Bio-Treat about the law suit when the complaint by Abax Lotus was filed.

Bio-Treat was said to have agreed, under the credit agreement signed on Jan 23, to issue Abax Lotus up to 543 million yuan (S$106.6 million) of US dollar settled senior secured notes due 2013, with detachable warrants that would have raised up to about $130 million if fully exercised and leave Abax Lotus with some 16 per cent stake in Bio-Treat.

The securities purchase agreement (SPA) is also said to have provided that Bio-Treat would issue and deliver the notes and warrants on or about Feb 17.

Abax Lotus said it terminated the agreement on Feb 29 'after several unsuccessful attempts to communicate with Bio-Treat'. Bio-Treat allegedly did not pay the damages of US$4.2 billion by March 7 as required by the SPA.

The allegations of Abax Lotus centred around Bio-Treat's failure to 'take all actions necessary to promptly effectuate the purchase and sale of the notes and warrants', which included not having made a formal application with SGX within five business days of Jan 23 for the listing and quotation of the warrants.

A separate rights issue that Bio-Treat entered into on Feb 18 to raise another $156 million was also said to have conflicted with Bio-Treat's commitment to 'safeguard the value of Abax's prospective investment in Bio-Treat' by not entering into any competing financing transactions prior to the issuance of the notes and warrants to Abax Lotus.

SPC poised to invest in refinery upgrading

SINGAPORE Petroleum Company (SPC) looks set to invest soon in further refinery plant upgrading to enable it to produce clean motor gasoline as well as process a wider range of difficult crudes to improve its margins.

This was hinted at by its chairman Choo Chiau Beng in its just-released 2007 annual report.

Plans for the ultra-low sulphur gasoline plant were first disclosed by SPC CEO Koh Ban Heng in an interview with BT last September.

At that time, he said that following the start of construction of a US$121 million upgrading to produce clean diesel at its joint venture Singapore Refining Company (SRC) refinery with Chevron, the partners intend to finalise the clean gasoline venture within six months - which suggests that this could come anytime now.

The clean gasoline upgrading will potentially cost up to US$200 million, Mr Koh indicated.

Further down the road, the SRC partners are also considering a coker plant - costing US$300-400 million to upgrade heavy fuel oil into more valuable products like petrol and diesel, he said.

Mr Choo said in the annual report that just as the clean diesel venture will enable SPC to meet Euro-IV diesel specifications by 2009 (and export this to 'greener' markets), 'continuous upgrading of the refining capabilities to meet changing emission standards will remain a priority'.
On the outlook for this year, the SPC chairman said that 'although the volatility in global financial markets is likely to restrain economic activities, refining margins are expected to remain relatively healthy given the continued lack of meaningful spare capacity and continuing strong demand for oil products from Asia, the Middle East and Russia'.

Upstream, SPC is also reaping the fruits of its oil and gas exploration as by end-2007, its average production had shot up to 10,000 barrels of oil equivalent per day, up from below 3,000 barrels at the start of the year.

This came from its acquisition of producing oilfields in China's Bohai Bay, as well as production from its Indonesian Kakap and Oyong fields.

Last year, despite the extreme volatility in the oil markets, SPC turned in its best performance to date, with a 78 per cent jump in profit after tax to $508.3 million.

In line with this, the remuneration of its key management also rose last year.

CEO Koh saw his salary rise to the $2.5-2.75 million band (from an upper limit of $2.5 million in 2006), while that of senior vice-president (E&P) Tony Tan went up to the $1.25-1.5 million band (upper limit $1.25 million previously).

Cosco unit wins US$292.3m of offshore, tanker deals

COSCO Corp (Singapore) continues to rack up the contracts, with its 51 per cent owned Cosco Shipyard Group (CSG) unit securing about US$292.3 million worth of offshore and tanker building deals. But it also announced the cancellation of a project worth over US$200 million.

CSG is building the hull of a semi-submersible production unit for an American owner for 923 million yuan (about US$131.8 million). A deposit of US$3 million has been received and the unit is scheduled for completion in 2010. Although the job is priced in yuan, the contract provides that payment be made in US dollars at the prevailing exchange rate on the payment date, Cosco Corp said.

'To minimise currency risks, we will try to have our contracts quoted in renminbi (yuan) and eurodollars in addition to US dollars. Our clients would have the option of settling renminbi-denominated contracts in US dollars at the exchange rate prevailing at the time of payment,' said Cosco Corp vice-chairman and president Ji Hai Sheng.

The second contract secured is to build two 59,000 dwt shuttle tankers for a Danish owner valued at 101.2 million euros (S$220 million). The client has agreed to pay 65 per cent of the contract value as the first instalment and the two vessels are scheduled for delivery around June and December 2011. This is the yard's second shuttle tanker deal after a contract to build two 10,500 dwt shuttle tankers two months ago.

Both jobs will be done at Cosco Nantong Shipyard, with work on the offshore platform also being fabricated at the new offshore construction facilities in Qidong. Cosco Corp's decision to expand its Nantong yard to focus on the offshore marine sector appears to be paying off. Work on phase one of four has begun with around $100 million of investment and will be completed in about a year and all four phases should be developed by 2011, the company said previously.

The group also announced yesterday that it will not be proceeding with a US$202 million project to build a GM5000 semi-submersible rig hull for Norwegian owner Red Flag AS as announced last May. One of the contract conditions requiring deposits from the customer before work would commence has not been fulfilled.

Boustead wins $25m of oil and gas jobs

BOUSTEAD Singapore's energy-related engineering division has clinched contracts totalling $25 million from the global oil and gas industries at the start of its new financial year ending March 31, 2009.

The company, which celebrates its 180th year this year, said more than 75 per cent of the value of these contracts would be completed by the end of the financial year.

The latest contracts involve the design, process engineering and construction of key process equipment for large refineries, gas processing plants and petrochemical plants located in Algeria, Brazil, Malaysia and Poland.

Wong Fong Fui, chairman and group CEO of Boustead, described the progress so far as 'a quick and pleasant start to FY2009'.

'We are pleased that several repeat clients have given us the opportunity to undertake these important projects,' he said. 'The latest $25 million in new contracts adds on nicely to the $71 million in contracts the group secured just last month, when every single division announced contracts - $24 million from energy, $32 million from water and $15 million from real estate solutions. We will continue to build on this.'

The company said these contracts would have a positive material impact on its profitability and EPS, but not its NAV per share, in the current financial year.

Rickmers secures US$627.5m facilities

RICKMERS Maritime has secured US$627.5 million in new credit facilities. The funds will be used in its fleet expansion. Rickmers said it will benefit from attractive interest rates ranging from 0.95 per cent to 1.2 per cent above US$ Libor per annum. A significant portion of the credit facilities will be hedged, thereby fixing the future cost of debt financing, it said.

Auditors' doubts on Shanghai Turbo

SHANGHAI Turbo Enterprises' auditors, Deloitte & Touche, said that the group's future as a going concern is in doubt because of material uncertainty following its losses last year. In response, Shanghai Turbo said that it expects to return to the black this year.

Concern over Greatronic deficit

GREATRONIC Ltd's auditors, Moore Stephens, said that the company's future as a going concern is in doubt, drawing attention to its losses last year and the deficit in shareholders' funds.

Enporis in reverse takeover deal

ENPORIS Greenz is buying a baby diaper maker in China for $181 million in a reverse takeover. Enporis will issue 452.3 million new shares at 40 cents each to fund the purchase, giving the new shareholders a 92 per cent stake in Enporis.