Concurrently, Scomi has also announced a proposed internal restructuring involving certain of its subsidiaries and the forming of a new group structure of Scomi's OSD in order to facilitate a refinancing exercise of the borrowings, prior to the proposed listing.
The entity for the proposed listing is an investment holding company that owns 100% of the restructured KMC Oiltools Bermuda Limited (KMCOB). Today, KMCOB is Scomi's foreign subsidiary company, responsible for Scomi's Oilfield Services business globally. With a corporate office in Singapore, KMCOB's core business activities are mainly in drilling fluids, drilling waste management and distribution of oilfield products and services for the oil & gas industry. OSD is now believed to be the fourth-largest among the global industry players.
Unlocking investment value
Scomi acquired KMCOB group in 2004 and listed its Machine Shop business in Asia through Scomi Engineering Bhd in January 2006. The listing unlocked the initial investment to allow Scomi to have 71% interest in Scomi Engineering. The proposed listing of OSD is expected to further unlock Scomi's initial investment in KMCOB and strengthen Scomi's balance sheet, thus enhancing the shareholders' value of Scomi. For the purpose of the proposed pisting, Scomi intends to list 30% of its stake in the restructured KMCOB. From its proposed listing and the proposed restructuring, Scomi is targeting to raise approximately RM600 million.
Enhancing Scomi's shareholders' value
The proceeds raised from the proposed listing and proposed restructuring will offer various options to Scomi to invest in new businesses such as the gas separation business and pare down debt to improve gearing. At the same time, the restructured KMCOB as a listed entity will be able to access the market to grow the business whilst Scomi continues to benefit from the growth via its shareholding in KMCOB.
Trading and reporting in USD
"With trading and reporting in USD, the proposed listed entity will not be subject to exchange rate fluctuations, since its transactions are U.S. Dollar-denominated." explained Shah Hakim Zain, Scomi's Group CEO on the rationale behind the listing of Scomi's OSD on the Singapore Exchange.
Scomi's OSD has operations at 61 locations in 35 countries, with almost 100% of its businesses transacted in foreign currencies, mainly U.S. Dollars. The proposed listing in Singapore will allow the trading of its shares and financial reporting in U.S. Dollars, similar with its global competitors.
"What we are doing today is essentially raising money overseas but eventually bringing the money back to the country." continued Zain. "With the dynamics of the international oil and gas industry today, the Proposed Listing is expected to raise the profile of Scomi's OSD in the global arena, thus further strengthening its position to expand in related fields."
Access to capital markets to support growth
The addressable global drilling fluids and drilling waste management businesses is expected to value at approximately US$8 billion for 2006 and continue to grow by an estimated growth of 10% yearly. In light of this favorable outlook, the proposed listing is timely, to enable Scomi's OSD to gain direct access to the capital markets to raise funds to support its ongoing international expansion and continued growth, without relying on Scomi.
Scomi's OSD is the largest division of Scomi both in terms of operations and financial contribution. The division has experienced exponential growth year on year and registered a 30% growth in 2005 which is higher than the growth of its market size. For the financial year 2005, OSD contributed US$213 million to the turnover of Scomi--of which 66% was from the drilling waste management business and 27% from the drilling fluids business.
OSD has also consistently increased its market share internationally and today it is a recognized leader in its sector in Norway, Pakistan, Malaysia, Venezuela, and the North Sea. The OSD is also focusing on new growth markets such as the U.S., Canada, Russia, and the Caspian Sea. Scomi is confident of OSD's growth opportunities and anticipates significant contribution from these markets for its financial years 2006 and 2007.
The Proposed Corporate Exercises are subject to the approval by the relevant regulatory bodies including the Malaysia's Securities Commission, Foreign Investment Committee, Singapore Exchange Securities Trading Limited, Scomi's shareholders, bondholders, and other relevant parties. Scomi is expected to make the applications to the relevant authorities within the next three months and targeted to complete the exercise by the first half of 2007.
Scomi is involved in the energy related industry with four core businesses of Oilfield Services, Energy and Logistics Engineering, Energy Logistics and Production Enhancement. Apart from Scomi, two of Scomi's subsidiaries--Scomi Marine and Scomi Engineering--are listed in Malaysia on Bursa Malaysia. Two of Scomi's associate companies--PT Rig Tenders and Chuan Hup Offshore Limited--are listed on the Jakarta and Singapore stock exchanges, respectively.
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