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Tuesday, 2 December 2014

Oil & Gas lead to wealth crunch, Malaysian Ringgit beaten and dropped!

PETALING JAYA: With the oil and gas (O&G) sector being the hardest hit in the current market rout, tycoons who own significant stakes in these companies have seen a huge loss in their net worth.

These tycoons had collectively had their shareholding in these companies valued at some RM15.89bil when O&G stocks were trading at their highest prices. The fall in global crude oil prices and the plunge in the value of O&G stocks on Bursa Malaysia saw the value of their shareholding cut by almost half to some RM7.86bil yesterday.

Accelerating the decline in share prices yesterday and the loss in their net worth was the decision by Petroliam Nasional Bhd (Petronas) to slash its capital expenditure (capex) by between 15% and 20% next year.

Petronas’ capex cut has spooked investors in the local O&G sector as many companies rely on the national oil company for work. Petronas’ huge capex, estimated at RM60bil a year prior to the planned cuts, was also a buffer for the domestic industry from the onslaught of crumbling crude oil prices and its effect elsewhere.

The largest of these companies, SapuraKencana Petroleum Bhd, has seen its share price dip by 48.78% year-to-date. At its peak, SapuraKencana was trading at RM4.81, translating to a wealth of RM4.85bil for Tan Sri Shahril Shamsuddin’s 16.84% stake in the integrated O&G concern.

SapuraKencana was the most actively traded counter yesterday, falling 10.36% to close at RM2.51. At yesterday’s market capitalisation of RM16.76bil, Shahril’s shareholding in the company was valued at RM2.53bil.

Another major shareholder of SapuraKencana is Tan Sri Mokhzani Mahathir, whose 10.25% interest has also seen a decline by almost half its value. At yesterday’s price, Mokhzani’s stake in SapuraKencana was valued at RM1.54bil compared to the RM2.95bil it was worth during its highest level.

Mokhzani had sold a block of 190.3 million shares in SapuraKencana earlier this year when the stock was trading at around RM4.30 per share, giving the entire sale a value of RM818.29mil. The shares were taken up by seven institutions.

Another stock in which Mokhzani has an interest in, Yinson Holdings Bhd, was also not spared from the bearish sentiment surrounding O&G stocks. Yinson’s share price has declined from its peak to close at RM2.45 on Dec 1. Based on yesterday’s price, Mokhzani’s stake in the company was worth RM235mil.

Billionaire Robert Kuok, T Ananda Krishnan, Tan Sri Ngau Boon Keat and Tan Sri Quek Leng Chan are also part of the list of value losers in this O&G stock meltdown.

Kuok owns 80% of PACC Offshore Services Holdings (POSH Semco), an offshore marine services provider that was listed on the Singapore Exchange in mid-2013 at a price of S$1.15 per share. POSH Semco closed yesterday at S$0.51, meaning that Kuok has lost more than half the value of his stake in that company.

Similarly, Ananda’s worth from his 42.3% shareholding in Bumi Armada Bhd has gone down by half the value it was during the peak of its share price. To be noted is that Bumi Armada had undertaken a rights issue in August this year that has seen the dilution of Ananda’s shareholding in the company.

Bumi Armada, Malaysia’s largest offshore support vessel firm, was relisted in 2011 at a price of RM3.03 per share. The stock dived into penny-stock territory yesterday, falling to a low of 98 sen before ending the day at RM1.01 per share. Based on yesterday’s price, Ananda’s stake in Bumi Armada was valued at RM2.06bil.

Dialog Group Bhd’s Ngau, meanwhile, has seen the value of Dialog’s stock fall. His stake was worth RM1.45bil based on yesterday’s closing price of RM1.26. This is about a one-third decline from the RM2.25bil his 23.2% stake was valued at when the stock had hit a high of RM1.96.

Stock investors such as Quek and his lieutenant Paul Poh are also edging into negative territory.

Quek had bought his 9% in TH Heavy Engineering Bhd (THHE) in 2013 at a price of 45 sen per share, enjoying gains for most of this year – the stock had hit a high of RM1.03 on Feb 19 this year. THHE closed yesterday’s trade at 40.5 sen a share, giving Quek a paper worth of RM38mil for his shareholding in the company as opposed to RM80mil as at the end of last year.

In April, Quek and Poh also took a block of 15.5% in Alam Maritim Resources Bhd at RM1.35 a share. They are sitting on a paper loss of some RM80mil today, or a decline of over 40%.

By: GURMEET KAUR The Star/Asia News Network

Ringgit Slides With Stocks as Oil Slump Poses Risk to Revenues

Malaysia’s ringgit posted the biggest two-day decline since the 1997-98 Asian financial crisis and stocks slumped on concern a protracted slide in crude will erode the oil-exporting nation’s revenue.

The currency weakened 1.5 percent to 3.4340 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. The ringgit has dropped 2.5 percent in two days, the steepest decline since June 1998. The benchmark FTSE Bursa Malaysia KLCI Index of shares fell 2.3 percent in the worst one-day performance in 22 months.

Brent slid to a five-year low after OPEC’s decision last week not to cut production to shore up prices, which have slumped 41 percent from a June high. The potential revenue loss may make it harder for Prime Minister Najib Razak to lower the fiscal deficit to 3 percent of gross domestic product next year from 3.5 percent.

“Malaysia is probably most affected by oil prices in the Asian space,” said Andy Ji, a Singapore-based strategist at Commonwealth Bank of Australia. “The ringgit could fall to 3.45 this week.”

A 1997 devaluation of the Thai baht triggered the Asia financial crisis and prompted Malaysia’s government to adopt a pegged exchange rate to the dollar in 1998. The ringgit was fixed at 3.8 until the policy was scrapped in 2005.

The currency dropped to 3.4392 earlier, the lowest level since February 2010, when it last traded at 3.45 and went on to reach 3.4545 on the 5th of that month, data compiled by Bloomberg show.

Stocks Fall

Oil-related industries account for a third of Malaysian state revenue and each 10 percent decline in crude will worsen the nation’s fiscal shortfall by 0.2 percent of GDP, Chua Hak Bin, a Bank of America Merrill Lynch economist in Singapore, wrote in an Oct. 22 report.

The FTSE Bursa Malaysia Index was dragged down by oil, gas and plantation stocks. The gauge has dropped 6 percent from its 2014 high in July.

SapuraKencana Petroleum Bhd., Malaysia’s biggest listed oil and gas services company by market value, fell 10 percent, the most on record. Dialog Group Bhd. (DLG), a contractor in the same industry, dropped 15 percent.

“We are watching the stocks closely,” said Gerald Ambrose, who oversees the equivalent of $3.6 billion as managing director at Aberdeen Asset Management Sdn. in Kuala Lumpur. “There are a lot of oil and gas companies that meet our quality and criteria but there was no upside previously. Now prices are falling.”

Bonds, Exports

Malaysia is already seeing a deterioration in its terms of trade. The current-account surplus narrowed to 7.6 billion ringgit ($2.2 billion) in the third quarter, the smallest gap since June 2013. A Dec. 5 report may show the nation’s exports declined 0.3 percent in October from a year earlier, according to the median estimate in a Bloomberg survey. That would be the worst performance since June 2013.

The nation’s sovereign bonds fell. The yield on the 4.181 percent notes due 2024 rose three basis points, or 0.03 percentage point, to 3.89 percent, data compiled by Bloomberg show. That’s the highest since Nov. 24. The five-year bond yield advanced five basis points to 3.81 percent.

“Hopes for Malaysia have rested on the fiscal consolidation story,” said Tim Condon, head of Asian research at ING Groep NV in Singapore. “Markets need to be re-priced for diminished hopes on that front.”

Source: Bloomberg By Liau Y-Sing and Choong En Han

Beating for KLSE and ringgit

PETALING JAYA: The stock market and the ringgit have taken a beating from falling oil prices, which have sunk below the US$70 per barrel mark.

The benchmark FBM KLCI, which measures the key 30 stocks of Bursa Malaysia, was down 42 points or 2.34% at its close at 5pm, marking its worst performance since mid-October, while the ringgit declined to 3.4340 against the US dollar, a four-and-a-half-year low.

At 5pm, Brent crude oil was down 94 cents to a five-year low of US$69.21 while US light crude oil – better known as West Texas Intermediate (WTI) – fell US$1.09 to US$65.06 as markets continued to be spooked by the plunge in oil prices.

The plunge follows an Opec decision not to cut production despite a huge oversupply in global markets.

The technical indicators are all pointing to even lower oil prices.

Technical analysts said the WTI – the benchmark oil price used by Bank Negara to calculate the economic indicators – should find some support at US$64 per barrel.

If it goes below that level, it could plunge all the way to US$32.40 per barrel – the lowest recorded price in recent years when it hit US$32.40 per barrel on Dec 19, 2008, before rising to US$114.83 on May 2, 2011.

Taking the cue from the plunging oil prices and a chilling warning issued by Petronas on declining revenues, oil and gas stocks on Bursa Malaysia also faced a rout which affected market sentiment as a whole.

Yesterday, some 981 counters declined compared to 82 gainers while 150 were unchanged.

Petronas president and chief executive Tan Sri Shamsul Azhar Abbas had said on Friday that the national oil corporation was cutting its spending for next year by between 15% and 20% and asserted that its contribution to the Government’s coffer in the form of taxes, royalties and dividends could be down by 37% to RM43bil from RM68bil this year.

Analysts said the selling could be over-done and expected a relief rebound when oil prices settle.

Oil prices fell to their lowest in five years yesterday due to the production war between Opec and the American oil boom from shale oil producers.

In recent months, the United States has become a major producer of shale oil and gas – fuel that’s extracted from rock fragments – threatening the position of Saudi Arabia as the dominant oil-producing country.

In response to the threat, Opec, which is influenced by Saudi Arabia, has vowed to continue production of oil in a market where supply has outstripped demand.

This has led to a free fall in global oil prices that have declined by more than 40% since July this year.

Late last night after the opening of the US counters, oil price fell to below US$65 a barrel.

Saudi Arabia hopes to break the back of shale oil and gas producers by making their operations not financially viable.

It had been reported earlier that at prices below RM80 a barrel, shale oil producers would go bust.

However, Bloomberg reported that only about 4% of US shale oil output needs US$80 a barrel or more to be economically viable.

Among the top losers of the Bursa yesterday were SapuraKencana Petroleum Bhd, Bumi Armada, Dialog Group Bhd, UMW Oil and Gas Bhd and Petronas-related counters.

The paper wealth wiped out due to the rout on the oil and gas stocks was close to RM8bil.

The selling pressure also spread to plantation stocks, with crude palm oil for third month delivery down RM63 to RM2,109 per tonne. The fall in crude oil prices would make biodiesel less viable as an alternative at current prices.

However, low-cost carrier AirAsia Bhd bucked the trend as it stands to benefit from weaker oil prices. AirAsia rose 21 sen to RM2.79.

Investors were also worried about the impact Petronas’ reduced payout would have on the Government that counts on the national oil corporation as a key source of funding for its expenditure.

UOB Kay Hian Malaysia’s head of research Vincent Khoo said a much lower crude oil price scena­rio would bring negative implications on the ringgit and the Federal Government’s ability to spend its way to pump prime the economy.

The head of research, products and alternative investments at Etiqa, Chris Eng, said that based on the weakening of the ringgit, foreign funds could be behind the selling.

“However, today’s selling was over­­done and I believe there could be a relief rebound,” he said, based on improving US economic growth and ample liquidity from China and Japan.

Eng said according to reports, Bank of America believed Malaysia’s budget deficit could balloon to 3.8% from a planned 3% while Citi thought the 3% deficit could still be maintained.

“The outlook for investing in 2015 remains challenging but it also depends on what level the local bourse ends the year,” he said.

By JOSEPH CHIN The Star/Asia News Network

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