PDZ's oil & gas venture 'slightly delayed'

KUALA LUMPUR: PDZ Holdings Bhd's plan to venture into the downstream oil and gas (O&G) business has been "slightly delayed" due to the weakening of the ringgit, said managing director Aminuddin Yusof Lana.
The weaker local currency has put pressure on the construction cost of a liquefied petroleum gas (LPG) plant in Kazakhstan, on which work is supposed to start in the second quarter of next year.
"For the moment, it may be slightly delayed but it is still on," Aminuddin told reporters after PDZ's AGM yesterday.
He said the company is reviewing the structure of its plans, with the construction cost capped at US$100 million (RM431 million).
"We try to make it (the cost) lower by going modular. We planned to build on- site before, but now we can build in the factory and ship it from there, we can cut cost and time, which means we can produce it earlier," he explained, noting that the construction period will be shortened to 18-24 months from 36 months initially.
Recall that PDZ in November 2014 entered into a framework agreement with Ken Makmur Holdings Sdn Bhd for the proposed production of LPG and condensate from the natural gas supplied by Ken Makmur from the Rakushechnoye oil and gas field.
The entry cost for the project is US$205 million and PDZ in early December announced that it could defer payment of certain components of the entry cost after a renegotiation, to provide financial stability to the company.
Initially, the company was required to fork out US$125 million as upfront payment. However, it renegotiated the payment terms under the gas supply agreement whereby it has to pay only US$38 million initially and the balance of US$87 million in the next six years.
It is expected that the new business will contribute 25% to the company's earnings.
At the ringgit's current level of about 4.30 against the US dollar, Aminuddin opined that the diversification into the downstream O&G industry is still viable and profitable given that demand for gas far exceeds supply.
However, he acknowledged that the company needs to solve the funding issue first before proceeding with the new venture.
"As you know, the share price is not congenial to the rights issue and we don't want to borrow because it is too big to borrow, we can't make money. We'll see how the investment market is," he said.
PDZ announced plans for a rights issue in November 2014. Then it had looked to raise as much as RM756.38 million based on the issue price of 22 sen per rights share.
However, the company's dismal performance on the stock exchange is likely to see it revised downwards. Aminuddin stated that said the rights issue, should, at the very least, be equivalent to the par value of 10 sen.
The stock, however, last traded at 7 sen, shedding half a sen, on some 421,800 shares done.
PDZ, which is involved in marine transportation for containerised cargo, posted a net loss of RM60.02 million for the financial year ended June 30, 2015 compared with RM493,000 a year before, mainly due to one-off expenses for business diversification exercise (RM4.2 million), impairment of property, plant and equipment (RM50.21 million) and impairment of financial asset (RM5.0 million).
Its profit from continuing operations, however, came in at RM1.98 million. Aminuddin said it would have been higher at RM9.0 million, if the impact of ringgit devaluation had been excluded.
For the first quarter ended Sept 30, 2015, its net loss stood at RM1.06 million against RM1.67 million in the previous corresponding period.
In order to return to the black, Aminuddin said, the company has been striving to reduce cost and secure more sales. "We believe our cost is stabilised now with the stabilisation of the ringgit," he added.