The downstream push for Petronas

Petroliam Nasional Bhd plans to grow its downstream business by
banking on lucrative specialty chemicals and an aggressive international expansion.

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This will be driven by Asia, which is growing faster than the rest of the world, supported by a rising middle class. Better demand for cars, plastics, perfume and even diapers will be good news for Petronas. The national oil company also refines oil into petrol, operates petrol stations, and produces petrochemicals. "This is a margin business. It's always cyclical. For us, it's important to be above water at the downcycle and to really make money at the upcycle. That is the nature of the business," said Datuk Wan Zulkiflee Wan Ariffin, the executive vice-president of the downstream business. For the year to March 31, 2011, the downstream business reported a net operating profit after tax (NOPAT) of RM7.2 billion, a 50 per cent jump from a year earlier. This was on the back of RM130 billion revenue, which also rose 13 per cent. Wan Zulkiflee thinks the downstream business should report better profits in 2012 as the industry is still in an upcycle, until about 2015. "We are catching the trend, especially in Asia Pacific where the demand growth is about 5.3 per cent for chemicals in general. "We are targeting markets like India, for example, where plastic consumption per capita is 7kg. In the West, it's 24kg per capita. The potential growth is in China and India. Some 18 million new cars are sold in China every year," he said. Interestingly, alalthough the business makes up almost half of the Petronas group revenue, it is the smallest profit contributor. The biggest money maker for Petronas is its upstream division, which looks for oil and gas. That business provided RM93.3 billion in gross revenue in 2011 but made RM34 billion in gross NOPAT. That is almost two-thirds of the total gross NOPAT. This is followed by the gas and power business, with RM11.2 billion, or 21 per cent of the total. However, this was not how the downstream business should be viewed, Wan Zulkiflee said. "The upstream return is quite high, for gas almost as high. For downstream, it's a margin business. The idiosyncracies are different. The playing field is also different. What's important for Petronas is to maximise the value chain," he said. The downstream division will also be very busy with the RM60 billion refinery and petrochemicals integrated development project, or RAPID, in southern Johor, set to come online in 2016. As for its downstream marketing segment, it wants Petronas Dagangan Bhd to expand further abroad and boost its lubricant business to be among the top five in the world by 2016.

MASkargo CEO on leave amid domestic probe

While details of the inquiry are sketchy, sources say managing director Shahari Sulaiman has been away since early November 2011.

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Malaysia Airlines Cargo Sdn Bhd (MASkargo)'s managing director Shahari Sulaiman has gone on leave amid a domestic inquiry. While details of the inquiry are sketchy, sources say Shahari has been away since early November 2011. It is unclear if he will be reporting back for duty any time soon. It is understood that investigations started as early as August this year and a domestic inquiry was done. The outcome is not known. Just before November, however, fresh allegations were brought up, which led to Shahari going on a leave of absence. Parent company Malaysia Airlines neither denied nor confirmed the news. "Encik Shahari Sulaiman, managing director of Malaysia Airlines subsidiary MASkargo, is currently on leave. "In his absence Encik Mohd Yunus Idris, senior vice president Global Sales and Government Affairs MASkargo, is overseeing the daily operations of the subsidiary," it said in response to queries on the matter. Attempts to contact Shahari were unsuccessful. The head of MAS' continuously profitable air cargo division, Shahari was named managing director in September 1 2007 replacing Datuk Ong Jyh Jong. Prior to that, Shahari was the general manager of cargo operations for MASkargo. Under Shahari's stewardship, MASkargo won the Best Air Cargo Carrier in Asia title at the 23rd annual Asian Freight and Supply Chain Awards 2009 in Hong Kong. Shahari also initiated the upgrading of the Material Handling Cargo System used in the warehouse complex in Kuala Lumpur International Airport, to ensure smoother handling of cargo and an increase in capacity from 650,000 tonnes to one million tonnes per annum. MASkargo made a record pre-tax profit of RM142 million in 2010.

Malaysia high on HSBC list

Global banking group HSBC has identified Malaysia as one of its seven priority markets in the Asia Pacific (Apac) that it will continue investing aggressively in amid a slowing world economy.

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The Asia-focused group operates in 19 countries within the Apac. "The priorities are Hong Kong, China, India, Malaysia, Singapore, Indonesia and Australia. These are countries in which we wish to continue to invest quite aggressively to build our businesses up," group chief executive officer Stuart Gulliver, who was here on a two-day visit, told reporters yesterday. Banking giants like HSBC have increasingly been looking to emerging markets like Asia for growth as economies in US and Europe falter. In the first nine months of this year, emerging markets (EM) and#8211; Apac, Latin America and the Middle East and#8211; accounted for about three quarters of the group's pre-tax profit as its businesses in the US and Europe made less money under the economic strain. It made a net profit of US$14.4 billion (RM45.4 billion) in that period. Further down the road, if markets normalised, EMs would likely account for 60 per cent of the group's pre-tax profit in five years' time, Gulliver said. He said the US is likely see muted growth next year while Europe will go through a recession. "That will have a knock-on impact in EMs but I don't think it will cause EMs to go into a recession. Our forecast for Malaysia is 5 per cent economic growth and#8211; it still puts you in an environment where you're creating job," he said. HSBC has been going through major changes since Gulliver, who began his career at the group some 32 years ago in Malaysia, took on the top spot in January. He has sold unprofitable businesses and aims to cut 30,000 jobs by 2013 and create another 15,000 in EMs as part of a bigger plan to save up to US$3.5 billion (RM11 billion) in costs by that year. Its global headcount now stands at 300,000. Stuart explained that the 30,000 job reduction is not a "net" number as there also would be reallocation of work. "Net-net, I would be surprised if our headcount in two to three years was less than 270,000," he remarked. He assured that the group would continue hiring staff in Malaysia and the other priority countries. He gave an assurance that the group would continue hiring in Malaysia and other priority countries. While HSBC may sell off some of its businesses in Apac that don't generate sufficient returns, it has no plans for a sale in any of the Asean core countries like Malaysia, Singapore or Brunei, he said. "We have great profitable businesses in all of the Asean countries which we will continue to develop," he added. Gulliver's visit to Malaysia, his first since becoming CEO, was to meet with key political and business leaders. It is something he plans to do once or twice a year, he said. The group is keen to participate as the country develops infrastructure like high-speed railway links, and is particularly interested in Johor's Islandar region. "We see a win-win situation from our ability to help provide capital and financing to the infrastructure build," he said. The group expects to have 57 branches by year-end.

Petronas on track to beat full-year target after strong Q2

Petroliam Nasional Bhd made better quarterly profits mainly on stronger oil prices and is optimistic of beating its earlier full-year pre-tax profit target of RM60 billion.

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It is confident of making at least RM70 billion this year, which has been shortened to just nine months, as it will be changing the end of its financial year to December 31 from March 31. President and chief executive officer Datuk Shamsul Azhar Abbas said Petronas' profit has already reached some RM57 billion in the first six months that ended on September 30. "Given the current trend, I see no problem of the company surpassing the initial target," he told a briefing here yesterday. For the second quarter ended September 30 2011, Petronas made a profit of RM18.3 billion on revenue of RM71.8 billion compared with RM11.9 billion and RM56.9 billion, respectively, over the same period last year. Its six-month revenue jumped by a quarter to RM144.8 billion on higher realised prices of petroleum products, crude oil and condensates, liquified natural gas and petrochemical products. Shamsul Abbas warned that the oil and gas industry will not be spared from the global economic uncertainty due to the eurozone sovereign debt crisis concerns and continuing geopolitical risks from the Middle East and North Africa. Already, oil prices have fallen in the current quarter from the second quarter on prolonged concerns over Europe and the US economy. He expects crude oil prices to hover between US$85 (RM268) and US$87 (RM274) per barrel next year. Meanwhile, the group plans to expand its power business in Japan and India, said Datuk Anuar Ahmad, executive vice-president for gas and power business. "We started with Singapore and also looking for Malaysian project in Johor and going to focus on the Asia-Pacific region, including India," he added. Petronas executive vice-president for exploration and production Datuk Wee Yiaw Hin also did not rule out plans to bid for new projects in Myanmar. "Yes, at the moment in Myanmar, we are only in the offshore and business is quite good. We will jointly bid for the onshore fields with our existing partners in Myanmar." Shamsul Abbas said Petronas will contribute RM1 billion to the National Trust Fund this year. "For the last 16 years, we have been contributing RM100 million a year. But with the results we have achieved over and above our expectations, we have decided to contribute RM1 billion a year," he said. The fund is used to conserve and restore what is considered as national heritage.

Bigger influx of foreign direct investment

Malaysia's foreign direct investment (FDI) for the first nine
months this year jumped 42 per cent from a year ago and the fullyear number is set to be better than 2010.

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FDI for the nine-month period was RM26.4 billion compared with RM18.6 billion for the same period in 2010, based on figures by the Department of Statistics Malaysia. The country recorded RM29.3 billion in FDI for 2010 while in 2009, total FDI was RM5 billion."Based on the FDI flows for the first nine months, it is likely that this year's total will exceed last year's," International Trade and Industry Minister Datuk Seri Mustapa Mohamed said in a statement yesterday. The pace of FDI, however, slowed in the third quarter. It almost halved to RM5.17 billion after strong growth in the first and second quarter This was mainly due to weaker external economic conditions, especially in the eurozone and the US, Mustapa said. "In terms of private investments, the government is confident of achieving the targeted RM94 billion this year," he said. Economists said the better FDI reflected investor optimism in the earlier part of the year and the government's efforts to reinvigorate private investments. "Given the encouraging statistics, Malaysia's private investment will likely perform favourably in 2011, making it possible for the economy to attain the government's overall GDP growth target of 5 per cent," Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias told Business Times yesterday. But the growth of FDI is likely to slow as problems in Europe has hurt sentiment. "The overall investment sentiment will be influenced by investors' perception of the ongoing European debt crisis," said Nor Zahidi, adding that concerns will likely be on the extent of the country's liability to European banks. According to the Bank of International Settlements, total European banks' claims in Asia Pacific countries amounted to US$2.1 trillion (RM6.7 trillion) as at end of June 2011. Claims by Portugal, Ireland, Italy, Greece and Spain totalled US$37 billion (RM118 billion). As for Malaysia, he said claims by European banks "were fairly small", accounting for about 41 per cent of total foreign claims as at end of June 2011. This compares with Singapore at 55 per cent, Philippines at 47 per cent and Indonesia at 40 per cent. Meanwhile, RAM Holdings group chief economist Dr Yeah Kim Leng said the improved FDI would help offset any possible global economic slowdown expected next year. He said sectors with strong growth potential like the services, oil and gas, and energy and environment-related sectors would attract foreign investments. The manufacturing sector would benefit from moving up the value chain and is likely to pull in foreign investors in areas, like solar power panel manufacturing, bio-medical and bio-technology.

ROC Oil eyes more projects in Malaysia

Kuala Lumpur: Australia’s ROC Oil Co Ltd is keen to bid for more Malaysian projects after clinching a deal to develop the Balai cluster marginal oilfield, offshore Sarawak, with partners Dialog Group Bhd and Petronas Carigali Sdn Bhd.

Read more: ROC Oil eyes more projects in Malaysia http://www.btimes.com.my/articles/20111129004358/Article/#ixzz1fQmhA8Fh

ROC general manager for corporate affairs and planning Mathew Gerber said Balai is an initial entry and the company aims to increase its presence in Malaysia's oil and gas sector, if given the opportunity. "We have a lot more to offer," he said, adding that the project award is a vote of confidence in ROC's abilities as an operator of small fields. ROC's maiden project in Malaysia will be carried out in two phases, with the pre-development phase due to begin in the second half of 2011 and take up 18 months to complete before the start of the development phase. The company expects the project to begin production two years after it starts the development phase. "There is no discussion (on drilling) at this point of time. It's pre-development in the next few months," he said in an interview with Business Times, here recently. ROC's local unit, ROC Oil Malaysia Holdings Sdn Bhd, holds 48 per cent of the partnership. Dialog has another 32 per cent while Petronas Carigali owns the remaining 20 per cent. "Future cashflows, the existing debt facility as well as potential project financial through the joint-venture company should adequately fund pre-development phase capital costs," he said. This could be between US$200 million and US$250 million (RM638 million and RM798 million). Listed on the Australian Stock Exchange, ROC has over 180 employees with offices in Sydney, Perth, and Beijing, apart from Kuala Lumpur. For the first half of 2011, the company posted a trading profit of US$51.5 million (RM164.2 million), on the back of a revenue of US$131.2 million (RM418.5), with operating cost of US$19.16 (RM61.12) per barrel of oil equivalent. "We are fortunate to be here just when Malaysia decides to open up its oil and gas industry. The Malaysian government has been successful in attracting foreign companies to boost the industry through various incentives," Gerber said.

Malaysia, Singapore in cross-border banking pact

“This new initiative will facilitate more effective liquidity management by our financial institutions,” Bank Negara governor Tan Sri Zeti Akhtar Aziz said in a joint press release
yesterday.

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Kuala Lumpur: The central banks of Malaysia and Singapore have inked a memorandum of understanding to establish a cross-border collateral arrangement aimed at enhancing liquidity facilities to banks in both countries.

 Under the agreement, banks operating in Singapore may obtain Singapore dollar (S$) liquidity from the Monetary Authority of Singapore (MAS) by pledging ringgit or ringgit-denominated sovereign and central bank securities with MAS. 

Similarly, banks operating in Malaysia may obtain ringgit liquidity from Bank Negara Malaysia by pledging S$ or S$-denominated sovereign and central bank securities. 

"This new initiative will facilitate more effective liquidity management by our financial institutions," Bank Negara governor Tan Sri Zeti Akhtar Aziz said in a joint press release yesterday. 

MAS' managing director Ravi Menon added that it would help build confidence among banks in both countries.