Malaysia: After picking Shell’s 51% stake in SRC, MHIL plans major investments, debt refinance

Chairman Iain Lo (left) and managing director Amir Bakar.

By Liz Lee

May 26, 2016

Malaysia Hengyuan International Ltd (MHIL) – the Chinese private refiner who acquired 51 per cent majority stake in Shell Refining Company (Federation of Malaysia) Bhd’s (SRC) – is planning to make major investments and refinance debt in the oil refining company.

MHIL acquired majority stake in SRC for $66.3 million from Shell Overseas Holdings Ltd in February.

MHIL is prepared to invest in upgrading the refinery to meet EURO 4 and 5 fuel specifications, and plans to increase revenue by expanding the value chain to wholesale trading and petrochemicals, SRC revealed.

SRC chairman Iain Lo said the sale offers benefits to many stakeholders, providing continued employment for staff, ongoing contribution to the local community and state, and allowing Malaysia to keep refining capacity in country.

These ensure security of product supply to Malaysians, as well as generating gross domestic product and tax revenues, he explained to reporters after the group’s 57th annual general meeting on Thursday.

“If SRC had not sold the stake to MHIL, the refinery operations would have converted to a terminal and we would have to cut about 85 per cent of the jobs. MHIL has growth aspirations for SRC,” Lo said.

Furthermore, as new majority shareholders, MHIL will be able to refinance SRC’s hefty debt of MYR1.5 billion. With that debt, SRC is heavily geared at 69 per cent.

“They will bring in new debt to pay off the old debt,” Lo shared. MHIL, a Chinese private refiner, will subsequently lead a debranding exerise and rename the company.

The sale offer triggers a mandatory general offer (MGO) on MHIL’s part, which SRC minority shareholders will have to agree whether or not to sell down their stakes. The MGO is expected to be concluded by September 2016.

Until the sale is completed, SRC will continue to maximise current refinery capabilities through crude optimisation, margin uplift tactics, efficient operations and tightened cost management.

SRC is a separate independent entity from Shell’s other operating unit in Malaysia. Shell Malaysia’s businesses are not affected by developments at SRC, and will remain a buyer of SRC’s products as Malaysia is a key market to the oil and gas group.

SRC has a long-term product offtake agreement with Shell, for 10 years in Malaysia.

The agreement is mutually beneficial as both SRC and Shell would not need to incur logistics costs by supplying or sourcing fuel from foreign parties.

Also read:

Shell to sell 51% in Malaysian refining co to MHIL for $66.3m

Shell defends move to sell entire 51% stake in Malaysian unit to Chinese co significantly below market value

New buyers, cash-rich energy firms driving Asia-Pacific oil and gas M&As

Saudi Aramco, Shell plan to break up Motiva, divide up assets

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