IJM's entry into Scomi raises eyebrows

This is given that IJM could be stepping into a very messy and prolonged battle to control the company.

KUALA LUMPUR: IJM Corp Bhd, one of the country's biggest construction companies, has a reputation of being a value buyer, snapping interest in several rival companies. Yet, IJM's entry into Scomi Group Bhd has raised eyebrows.

This is given that IJM could be stepping into a very messy and prolonged battle to control the company.

IJM's purchase of a stake in Scomi is unlike its takeover of Road Builders Bhd and Kumpulan Europlus Bhd.

Both investments have reaped dividends for IJM, hence helping build its reputation as a value buyer.

In Scomi, there could be potential minefields lurking around the corner, although thus far, all the substantial shareholders have been very cordial with each other.

There has been no moves to gain control of the board.

The emergence of so many new shareholders, however, points to something bigger than control of the board: A move to gain control of the shareholding of the company, perhaps.

IJM currently owns about eight per cent of Scomi, while the other new shareholders in the company - Tan Sri Abu Sahid Mohamed and parties aligned to him - control slightly more than that.

Abu Sahid reportedly opposed a deal to issue some RM110 million renewable convertible bonds to IJM.

The deal will see IJM emerging as the single largest investor in Scomi.

The Securities Commission approved the deal early this month. The approval has laid the track for a potential bitter corporate tussle.

But before that happens, IJM will have to get Scomi shareholders to vote in favour of the bonds issue at a special shareholders meeting.

The catch here is IJM will not be able to vote at the meeting as it is an interested party in the deal.

With its hands tied, the extraordinary general meeting to be held in 2013, will see IJM banking on good sense prevailing among the retail shareholders.

Retail shareholders, just like any other type of shareholders, not only expect the company to be run professionally. They also expect to see improvements in the share price.

For them to see the value in supporting IJM's interest, the onus is with IJM itself to start talking the talk.

Thus far, the research community feels that IJM sees Scomi's interest in the oil and gas business as a long and sustainable business, and that IJM itself could use it own construction expertise to help turn Scomi into an integrated oil and gas player.

Scomi is one of only four firms in the world that supply drilling fluids services. The others are international players, such as Baker Hughes, Schlumberger and Halliburton.

There is room for growth as Scomi's global share of the US$5 billion (RM15.35 billion) market is only at seven per cent. Nevertheless, it provides an opportunity for Scomi to expand into larger integrated oil and gas project, which has long-term recurring income.

Scomi's oil and gas division has an order book of about US$650 million and it is expected to rise further in the coming months.

As it had previously been involved in the oil and gas sector, IJM might still know thing or two about the sector.

IJM's previous exposure to the oil and gas industry was via fabricator, Torsco Sdn Bhd, which owned a fabrication yard in Lumut, Perak.

IJM sold Torsco Kencana Petroleum in August 2007 for RM75 million.

IJM also previously held a stake in a subsidiary of Eversendai Corp before hiving it off prior to Eversendai's listing last year.

Then, of course, there is the rail transport business of Scomi.

Today, Scomi is seen as one of the world's top monorail makers in the world. The company has contracts running into the billions of dollar in India and Brazil.

There is no doubt that IJM can add value and synergy to the rail transport business of Scomi, by marketing Scomi's expertise under the IJM banner, which has more mileage in the development sector here and abroad.

The planned investment into Scomi, however, is not a one-way traffic.

IJM's RM140 odd million gambit on Scomi, if successful, could just be the bounty that helps IJM itself as a company grow to the next level in the global market place.