Vengeful Petronas grounds MISC

By P. Gunasegaram

Despite what you may have read about malevolent tigers in books, we are anything but that. We tigers are right up in the food chain and nature dictates that we kill to eat. But we don’t kill for sport and we don’t attack for revenge — that belongs to a special breed of animals, human beings. Tiger tells the tale of a vengeful national oil corporation, yes, Petronas of course, acting with great malice towards its own subsidiary shipper MISC. It may need prime ministerial action to put things right.

Tiger is puzzled aplenty. Yes, human beings are very strange creatures. But will they go to the extent of cutting off their own nose to spite their face? Apparently they do and they don’t even care for this term in the corporate jungle called governance which holds them to a certain standard of behaviour.

What is Tiger referring to? Well, it is national oil corporation Petronas’ strange announcement last week. Here it is in full:

“Petronas wishes to announce that as part of its strategy to optimise the value of its liquefied natural gas (LNG) business, it has decided to directly procure new-build LNG ships to meet its LNG transportation requirements.

“The move will allow Petronas to have direct access to LNG shipping capacity at the lowest possible costs.

“Petronas will be engaging MISC Bhd to provide Project Management and Technical Consultancy services for the construction of the new LNG ships, given MISC’s extensive experience and expertise in the LNG shipping sector and familiarity with PETRONAS’ business needs.”

Innocuous as that sounds, it is not. Ever since Petronas started transporting LNG, MISC has been the one that has been doing it. For some twenty years its LNG business came from Petronas. Petronas solidified this by acquiring a major stake in MISC in 1998 which also involved Petronas’s injecting its own five Puteri Class LNG ships into MISC.

To Tiger it seems strange that when Petronas already has a subsidiary engaged in LNG carriage, and one that is the second largest LNG carrier in the world at that, it suddenly wants to do the business on its own, merely engaging MISC to provide consultancy services. What has changed?

In a sentence, it is has to be none other than Petronas’ attempt to take over and privatise MISC via a revised RM5.50 a share offer earlier this year; an attempt that failed when it did not receive enough shares from minority shareholders which included state entities such as Permodalan Nasional and others. This was despite acceptance by the Employees Provident Fund which held just under 10% at that time.

Interestingly, such was investors regard of MISC that the share price moved above the offer price to as high as RM5.85 a share after the offer failed, slipping back ahead of news that Petronas now wants to go into the LNG business by itself. The share languishes at around RM5.20 as Tiger puts paw to paper.

Tiger has a number of questions for Petronas:

• • Why when Petronas has an LNG carrier subsidiary does it want to buy new LNG tankers directly? If Petronas says direct entry gives lowest cost, why is it opening up marginal fields to others? Besides, LNG carriage is not part of Petronas’ core business.

• • Is this not an act of bad faith which will depress its own subsidiary MISC’s prospects and share price when investors reasonably from all previous communication believed that Petronas’ LNG carriage business will be conducted by MISC?

• • Is it Petronas’ intention to deliberately undermine MISC’s prospects so that the price can be depressed for another future takeover offer by Petronas?

• • If it is, is it the right way for Petronas to behave as a national oil corporation which has or should have high standards of corporate governance?

• • Is this what we can expect from Petronas in terms of its other listed subsidiaries — go to the market, get investors, try and privatise for a low price and if that fails, deliberately sabotage that listed company so as to mount another takeover on it?

• • Is this an act of vengeance that the misguided management is trying to impose on minority shareholders for rejecting the offer, even if the move will ultimately undermine and perhaps even destroy its very own subsidiary?

With MISC being a listed company, at least part of its operations, in this case the carriage of LNG, comes under some amount of scrutiny and accountability which is more than can be said for Petronas’ other activities which are shrouded in a cloud of secrecy.

As MISC already has the necessary expertise and wherewithal to run the LNG carriage business, Petronas running it on its own is unnecessary duplication which inevitably will raise the cost of operations in the longer run and cause diminution in the value of Petronas’ investments in MISC.

Petronas is ultimately owned by the people of Malaysia through the government. It cannot act any which way it wants — its directors and management must be always held accountable to the people and government.

If Petronas’ actions are in any way at all questionable — and in this particular case, it certainly looks so — it is up to the shareholders, that is the government, to act. If Petronas has no reasonable grounds for this move, then Tiger suggests the prime minister himself intervene to put matters right.

GRRRRR!