Yinson may offer lifeline to TH Heavy
Khairul Khalid 
Yinson is said to be considering the purchase of TH Heavy's FPSO for its operations in Vietnam

Debt-laden TH Heavy Engineering Bhd could be handed a lifeline soon, with a deal to dispose of some of its assets said to be in progress.

A source tells FocusM Yinson Holdings Bhd is in talks to buy TH Heavy’s sole floating, production, storage and offloading (FPSO) vessel. The asset could be utilised by Yinson for its Vietnam operations.

“Discussions between the parties are already in advanced stages. If this deal goes ahead, it will allow TH Heavy to clear off some of its debts. Yinson is also in talks to buy some of TH Heavy’s assets in Sabah,” says the source.

Last April, TH Heavy was classified as a Practice Note 17  (PN17) company, a category given by Bursa Malaysia to companies in financial distress. In September, it was given more time by the High Court to finalise a rescue plan with its creditors and has seven months to submit its regularisation plan.

Yinson’s core business is providing FPSO services, which it leases and operates to its oil & gas (O&G) clients as part of its integrated services.

In April, the company bagged a 10-year FPSO contract from Talisman Vietnam BV worth US$1 bil (RM4.4 bil) for the supply, operation and maintenance of an FPSO for the Ca Rong Do field development offshore Vietnam.

The bareboat charter contract has a five-year extension option exercisable by Talisman Vietnam, a wholly-owned subsidiary of globally integrated oil company Repsol SA, which is listed on the Madrid stock exchange, and the operator of the Ca Rong Do field.

If the FPSO deal goes through, it would come as some relief to TH Heavy, which is already reeling from the impact of the current economic climate and volatile oil market.

Its core business is the fabrication of offshore oil and gas facilities and is 30% owned by Lembaga Tabung Haji. Its net loss grew 145% to RM16.79 mil for the second quarter ended June 30, compared with RM6.85 mil the previous year.

TH Heavy is 30% owned by Lembaga Tabung Haji

Weak performance

Revenue also fell 69% year-on-year to RM2.38 mil, from RM7.72 mil the previous year due to lower fabrication activities.

For the six months ended June 30 (H1), net loss fell by 6% to RM37.97 mil, from RM40.29 mil, while its cumulative revenue fell 79% to RM4.63 mil from RM22.24 mil.

TH Heavy cited lower realised margin on ongoing jobs, slower fabrication activities and higher finance cost as the main reasons for its poor performance.

Its ill-fated venture into the FPSO business began in 2011 when it purchased a partly-converted FPSO called Laurita for US$82.5 mil. However, it had to spend about RM24 mil on annual maintenance because it did not secure a charter contract for the FPSO for three years.

In May 2014, Japanese oil company JX Nippon agreed to charter the FPSO for the Layang field off Sarawak, and TH Heavy commenced conversion works.

Under the contract, it was to deliver and install the Deep Producer 1 FPSO at the project location and lease the FPSO until November 2023.

Nevertheless, TH Heavy struggled with its finances and subsequently, some contractors and suppliers took legal action against the company.

The status of the Layang FPSO is still unclear. In June, FocusM wrote that TH Heavy may no longer proceed with the Layang FPSO project due to the lack of funding. However, TH Heavy responded by saying that it was still in negotiations to continue with the job.


Petronas blow

TH Heavy’s potential sale of its assets in Sabah could be linked to its problems with Petroliam Nasional Bhd (Petronas) projects in that state.

This month, TH Heavy’s wholly-owned subsidary, THHE Fabricators Sdn Bhd (TFSB), was dealt another blow by Petronas, which banned its oil and gas fabrication unit from various job scopes due to its “non-performance” in a Sabah project. It was due to TFSB’s “non-performance” in relation to a contract known as “Procurement, Construction and Commissioning (PCC) of KNPG-B Topside PH II, Kinabalu Non-Associated Gas (NAG) Development Project” (PH II Kinabalu Project).

TFSB is already facing a two-year ban from participating in tenders by Petronas Carigali since April 4, 2016, due to what Petronas Carigali described as “non-performance” on TFSB’s part under the same contract.

At press time, neither Yinson nor TH Heavy has responded to FocusM’s queries on the matter.

Contrasting fortunes for O&G services providers

The fortunes of Yinson Holdings Bhd are in stark contrast with that of TH Heavy Engineering Bhd, despite facing the same upheavals in the O&G industry.

Yinson’s growth in Vietnam is cited by an AmInvestment Bank research report as one of the positives for the company in the long run. There are further potential upsides for its floating, production, storage and offloading (FPSO) business in the region, it adds.

“Over the longer term, Yinson’s earnings growth will be further supported by its 49%-owned Ca Rong Do (Red Emperor) FPSO, which is targeted to achieve first oil in September 2019.

“There are still further prospective value enhancements to the group as its 51%-owned FPSO Four Rainbow, currently idle, could be redeployed in the Southeast Asian region,” says AmInvestment Bank.

Yinson’s Q2FY18 core net profit surged 41% quarter-on-quarter to RM110 mil due to the commencement of the JAK FPSO and deployed currently at Ghana’s Offshore Cape Three Points block.

This drove Yinson’s earnings before interest, taxes, depreciation and amortisation (Ebitda) margin from 59% in Q1 this year to 85% in Q2.

With ENI Ghana Exploration & Production Ltd’s final acceptance in early June this year of the JAK FPSO, there was a two-month contribution from this project, which achieved first oil in May, to boost Q2 earnings.

While the JAK FPSO will continue to drive earnings momentum in the subsequent quarter, this will be partly offset by the termination of the charter for the group’s 49% stake in FPSO PTSC Lam Son effective June 30 this year, the report said. The one-month impact caused the Q2FY18 associate contribution to drop 27% quarter-on-quarter and 19% year-on-year to RM20 mil.

Yinson was founded in 1983 by Lim Han Weng in Johor Bahru as a transport and logistics company. In 2010, Yinson ventured into the marine transport business. The next year, it entered the O&G industry when it formed a consortium with PetroVietnam Technical Services Corporations (PTSC, a subsidiary of PetroVietnam). The JV was subsequently awarded a contract for the charter of floating storage and offloading vessel FSO PTSC Bien Dong.

This paved the way for Yinson to win a contract for the charter of an FPSO vessel, the FPSO PTSC Lam Son. In 2014, it acquired Norwegian FPSO company Fred Olsen Production ASA.

Yinson is now the sixth largest FPSO company in the global FPSO market with a fleet of five FPSOs, one floating, storage and offloading (FSO) as well as four offshore support vessels.

Its newest purpose-built offshore production asset, the FPSO John Agyekum Kufuor, achieved first oil in May 2017. The project is expected to supply power to Ghana for the next 20 years.

This article first appeared in Focus Malaysia Issue 256.