KUALA LUMPUR: Muhibbah Engineering Bhd and CIMB Group Holdings Bhd could end up as shareholders in the beleaguered Asia Petroleum Hub Sdn Bhd (APH) through a debt-to-equity swap, say sources.

Sources said both Muhibbah and CIMB, which each owns over 75% of the unsecured and secured debt of APH respectively, will take charge of the Johor hub. “They are targeting to complete the project within the next two to three years. This provides a conclusion to the project which has been delayed for over two years,” said a source.

APH owes CIMB a reported RM840 million, which was drawn down from a RM1.4 billion three-year bridging loan the bank gave to APH in 2006.

Early last month, CIMB placed APH into receivership for the second time, and appointed PricewaterhouseCoopers as receivers and managers to facilitate a restructuring exercise.

CIMB had first placed APH in receivership last June, but this was lifted a month later.

APH still owes Muhibbah RM370.8 million for the project, according to Muhibbah’s last annual report for its FY10 ended Dec 31.

Muhibbah undertook the project to engineer, construct, install, commission and complete the oil storage and bunkering facility.

However, it is learnt that both CIMB and Muhibbah have yet to make any provisions regarding the project.

This development should now ease investor concerns over the need for provisions, a risk which had been highlighted in Muhibbah’s annual report and affected sentiment for the stock.   

Industry observers say that the progress should finally help the project take off, and could provide APH the strong backing it needs.

Muhibbah is a construction-based company with a strong niche in oil and gas related projects locally and overseas, they noted.

APH’s existing two shareholders are private terminal operator, KIC Oil & Gas, which owns a 90% stake, and Umno-linked group Trek Perintis Sdn Bhd the remaining 10%.

With the latest developments, it is unsure what is APH’s path moving forward with the new shareholders – CIMB and Muhibbah.

The private company’s executive chairman, Abdul Rashid Mohd Isa was unable to be reached for comment.

Last July, Datuk Gan Ah Tee of BDO-Binder was discharged as receiver and manager amidst talks of new investors emerging to revive the troubled company.
However these investors, for reasons unknown, did not come into APH.

At one stage, Tan Sri Syed Mokhtar Al-Bukhary’s Seaport Terminal (Johore) Sdn Bhd was also said to be interested in the project.
APH’s Johor facility has had an eventful past from the very beginning, to say the least.  

The island on which the project is expected to be built is reclaimed land, and saw a reported investment by the Malaysian government of RM100 million for both the land reclamation and infrastructure.

Both APH and the Malaysian government planned to turn the Johor island-hub into one of the world’s largest fully integrated petroleum terminals capable of handling 30 million tonnes of petroleum products, to become part of the global petroleum trading market. There were also plans for maritime traffic from Singapore to be directed to the island hub, which will also have bunker facilities to accommodate 3,000 vessels annually.

While the project was initially expected to be completed in 2009, various incidences caused interruptions to the project and increased its debt. It currently has a price tag of RM1.4 billion and as of August last year, the project was only 60% completed.

According to earlier reports. the delays were largely attributable to the need for redesigning, after the soil on the bunker island, which was largely silt, was found to be unsuitable for building structures. Since the island rested on silt, it was rumoured that APH had to incur additional costs in stabilising using a method incorporating the use of perforated vertical drains, which stalled the entire project.

Located on a man-made island close to Johor’s Tanjong Pelepas, the project already has a an expensive price tag of about RM1.4 billion.

Muhibbah has also had some sour effect from APH’s eventful history.

The company was awarded an RM820 million project by APH in 2007. However, as APH’s financial standing declined, Muhibbah was worried that it would not be able to recover debts.

However, the group later reported in June 2011 that it had received a corporate guarantee from APH that it would not have to write down the RM307 million debt.

Muhibbah’s share price shot up yesterday after Singapore Straits Times broke the news that a CIMB-led consortium has agreed to take over the multi-billion ringgit oil terminal project in Johor. The stock closed at RM1.41, which was 17 sen or 13.71% higher than its previous close on Jan 31.

Trading volume swelled to 12.4 million shares, or 17 times more than the volume traded on Tuesday.


This article appeared in The Edge Financial Daily, February 3, 2012.