Frankly Speaking

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THE right thing to do

The week of July 22-28 was a dramatic one for Ranhill Energy and Resources Bhd, which would have been listed on July 31 had it not been for the suspension of its affiliate's licence by Petroliam Nasional Bhd (Petronas).

The suspension of Perunding Ranhill Worley Sdn Bhd's (PRW) licence on July 17 was a blow to Ranhill because a significant portion of its oil and gas revenue is derived from Petronas' projects.

Without the Petronas licence, the contribution from Ranhill Energy's gas division is expected to decline.

Subsequently, Securities Commission Malaysia instructed Ranhill Energy and its principal adviser, Maybank Investment Bank Bhd, to defer its listing on Bursa Malaysia.

Then on July 26, despite news that the licence had been reinstated, albeit only for upstream activities, Ranhill announced that it was not proceeding with the initial public offering (IPO).

Note that although the licence had been suspended on July 17, Ranhill Energy did not disclose this to the exchange. It only commented on the matter officially on Wednesday, July 24 — the same day the SC instructed it to defer the listing.

Would Ranhill Energy have said anything if news of the suspension hadn't broken?

The licence was suspended because of issues related to the Melaka regasification plant. This raises the question of how long this problem has existed. Was Ranhil Energy negotiating a settlement with Petronas, and was this disclosed in the prospectus?

Deferring the IPO had been the right thing to do, given the uncertainty surrounding the future earnings of the company.

This is because losing the licence means there has been a fundamental change in the fabric of the company. It has become quite different from the one presented to investors during the pre-IPO period.

Hence, by calling off the IPO and returning investors' money, it is doing right by those who believed in Ranhill Energy's investment case.

KNM's failed venture

Although KNM Group Bhd will be making a gain of RM9.8 million from the sale of its Brazilian operations, it is puzzling that it is exiting the country's oil and gas market when others are thriving.

In June, SapuraKencana Petroleum Bhd and its joint venture partner, Seadrill Ltd, clinched a US$2.7 billion (RM8.7 billion) contract from Petroleo Brasileiro SA (Petrobras) to build, charter and operate three additional deepwater flexible pipe laying support vessels (PLSVs). This is in addition to a US$1.4 billion contract from Petrobras to build, charter and operate three similar PLSVs.

Singapore-listed Keppel Corp Ltd's offshore and marine arm has had a presence in the Brazilian oil and gas market since 2000.

The discovery of pre-salt reserves in Brazil in the 1990s has given its oil and gas sector an additional boost, with many investors expecting the country to be leader in the energy sector by 2020.

So this raises the question as to why KNM's Brazilian businesses continue to be loss-making since they were acquired by the group in 2008. Back then, KNM said the rationale for the acquisition was to enhance its presence in the manufacture of process equipment for the oil and gas, petrochemical, mining and biofuel industries.

Five years later, KNM is selling its Brazilian business to Telcon Telecomunicações E Informatica LTDA for eight reals or RM12 a share. This includes debt of RM29.5 million in one of the Brazilian units.

KNM says it had invested RM101.17 million to acquire and develop the Brazilian group of companies. Based on the gain of RM9.8 million, it would mean that KNM has already written off a substantial amount of its investments.

While others appear to be doing well in Brazil, what went wrong for KNM? Did it go in at the wrong time? Or does it see something that others don't?

Lesson in Newcrest

In a move to monitor the information that companies divulge to analysts and fund managers, the Australian Securities and Investment Commission (ASIC) will attend selected company briefings beginning August.

For starters, ASIC has identified about 20 companies. The representatives of the regulator would also listen in on conference calls in a move to clamp down on selective disclosure of information by companies.

This follows an incident in the first week of June, when shares of Newcrest Mining Ltd, Australia's biggest gold producer, fell heavily in the days ahead of the company's disclosure of a possible A$6 billion (RM17.8 billion) write-down. The shares fell after a flurry of broker reports, predicting impairment charges and dividend reduction from the mining company, were released.

This led to accusations that the company should have released sensitive information to the exchange as it had in briefings to analysts and fund managers. Newcrest denies releasing sensitive information.

Locally, this is something that perhaps Securities Commission Malaysia or Bursa Malaysia should consider. Companies generally tend to be more open in briefings for fund managers and analysts. In the process, sensitive information, especially on future earnings prospects, is sometimes divulged.

But the retail investor does not have access to such information, leading to an inefficient market. If the authorities are not able to sit in on the briefings, perhaps another way is to make it mandatory for companies to put up their briefing notes on the exchange. Some companies are already doing it, but they are few and far between.

This story first appeared in The Edge weekly edition of Jul 29-Aug 4, 2013.