Headline PNB charts its strategy in the downturn MediaTitle The Edge Date 04 May 2020 Language English Circulation 25,910 Readership 77,730 Section Corporate Page No 12 ArticleSize 963 cm² Journalist JOSE BARROCK PR Value RM 49,743

PNB charts its strategy in the downturn

PNB WEBSITE, COMPANIES' ANNUAL REPORTS BY JOSE BARROCK only other government-linked Considering the rights and organisation to have significant preference shares started trading tate-controlled unit trust exposure to oil and gas is PNB. PNB's equity investments on Oct 25,2017, a rough estimate fund Permodalan Nasion- Looking at its annual reports, puts PNB's investment in Veles- al Bhd (PNB) is building PNB and its related companies STRATEGIC COMPANIES STAKE (%) to's rights and preference shares up its resilience to the have a 60.18% stake in Velesto Malayan Banking Bhd 48.65 at above RM1 billion. increasingly challeng- Energy Bhd, 38.21% in Sapura En- For its year ended December Sime Darby Bhd 51.55 Sing operating environment — ergy Bhd, 12.82% in Bumi Armada 2019, Velesto registered a net tweaking its investment strate- Bhd, 10.11% in Petronas Gas Bhd, Sime Darby Plantation Bhd 56,65 profit of RM33.22 million from gies, diversifying its portfolio and 8.27% in Petronas Dagangan Bhd, Sime Darby Property Bhd 56.65 RM670.75 million in revenue. As at investing in new asset classes in 7.9% in Petronas Chemicals Group end-2019,the company had accu- SP Setia Bhd 49.8 the international financial mar- Bhd, almost 6.5% in MISC Bhd and mulated losses of RM2.15 billion. kets — in response to the Covid-19 6.36% in Serba Dinamik Holdings UMW Holdings Bhd 59.58 As at end-December last year, outbreak and rout in oil prices. Bhd, among others. Velesto Energy Bhd 60.18 Velesto had deposits, cash and

The outbreak has resulted in Collectively, the market value Chemical Company of Malaysia Bhd 48.57 bank balances of RM239.98 mil- a shutdown in many parts of the of PNB's stakes in these compa- lion. On the other side of the bal- world, causing the global econo- nies is more than RM11 billion. MNRB Holdings Bhd 56.68 ance sheet, it had long-term bor- my to come to a standstill. This It is also not a secret that many Sapura Energy Bhd 38.21 rowings of RM980.96 million and has also resulted in oil prices of the shareholdings are under Duopharma Biotech Bhd 51.29 short-term debt commitments of tumbling, with the benchmark water.Two of the companies that RM312.29 million. For the year end- Brent Crude falling below US$25 have been hardest hit are Sapura ed December 2019, Velesto incurred per barrel as transport has almost Energy and Velesto. CORE COMPANIES STAKE (%) RM81.45 million in finance costs. ground to a halt. Last week, Sapura Energy suf- Telekom Malaysia Bhd 21.45 To make matters worse, until fered a net loss of RM4.56 billion MMC Corp Bhd 20.21 PNB on its investments recently, Saudi Arabia and Rus- on the back of RM6.45 billion in PNB says its investments have a sia were at loggerheads over how revenue for its financial year end- Axiata Group Bhd 17.67 medium and longer term hori- much oil production should be ed January 2020. A chunk of the IJM Corp Bhd 18.48 zon, and that all investment op- cut to stabilise prices. The for- losses, RM3.73 billion, were a re- Gamuda Bhd 16.41 portunities are evaluated based mer is the de facto leader of the sult of provisions for impairment on their own merits and under- 18.1 Organization of the Petroleum on goodwill and property, plant Tenaga Nasional Bhd go a rigorous evaluation process. Exporting Countries (Opec), while and equipment, and anticipation BIMB Holdings Bhd 16.35 This includes an evaluation of a the latter is an important mem- of extended delays towards com- Bumi Armada Bhd 12,82 company's fundamentals and the ber of Opec+. pletion of projects brought about outlook for the industry, which CIMB Group Holdings Bhd 11.42 In a response via email to by Covid-19. then go through a multi-layer DigiCom Bhd 10.49 questions by The Edge, PNB says, Once a darling of the local governance process to ensure it "Inevitably, due to the pandemic bourse, Sapura Energy has been MaxisBhd 10.58 meets PNB's investment criteria hit by the downturn, and as at and objectives. and the oil price war, we are like- RHB Bank Bhd 6.31 ly to see in the immediate term end-January this year, had accu- "Our investments into the oil that companies will face earnings mulated losses of RM4.47 billion. 101 Corp Bhd 9.45 and gas companies are no excep- pressure. Our strategy has been As at end-January, Sapura En- tion to this process," it says. to diversify our portfolio so as to ergy had cash and cash equiva- PROPERTIES HOSPITALITY The GLIC adds that based on build up our resilience to ride out lents of RM772.37 million. Its long- Domestic PNB Perdana Hotel & Suites, evaluation and analysis, it took such challenging periods. We will term borrowings stood at RM7.11 Kuala Lumpur these investments as an oppor- Menara MBSB also continue to accelerate diver- billion while its current liabilities tunity to enter the industry since Hotel Perdana, Kota Bahru sifying our portfolio via invest- amounted to RM3.14 billion. Sapu- Menara PNB, Kuala Lumpur valuations had significantly gone PNB llham Resort, Port Dickson ments into new asset classes in ra Energy's finance costs for the Menara Heitech Village, Selangor down during the downturn. The the international financial mar- financial year ended January 2020 Impian Mroib Hotel, Banting Slangor recent decline in stock prices, Menara MIDF, Kuala Lumpur kets. Most important is that our was RM664.56 million. However, PNB says, was initially driven Hotel Sri Petaling, Kuala Lumpur focus is mainly on the medium it is noteworthy that the compa- Bangunan UTMSPACE, by geopolitical developments and longer term, looking beyond ny had RM22.93 billion in total Kuala Lumpur Kinrara Resort, Puchong, Selangor and more recently by the pan- the immediate term. assets as at end-January. Bangunan Setla 1, Kuala Lumpur Lanjut Beach and Golf Resort, demic, which has resulted in de- Kuala Rompin, Pahang pressed global demand for crude "Notwithstanding this, PNB Last month, company officials Menara Tun Ismail Mohamed Ali oil, leading to oil prices plunging is continuously reviewing as- had said they were in discussions Ascot Kuala Lumpur sets with a view to reinvest in with banks on refinancing bor- to US$20 per barrel. Hotel Jen, Penang counters with better prospective rowings, and that the exercise is International properties "The time is now for resil- Hotel Equatorial, Melaka yields and long-term return po- slated for completion by year end. Aviation House, London ient leaders in the industry to tential to drive an efficient use On the high gearing levels of have a key role in steering the PNB House, London of capital. In the near term, this oil and gas companies, PNB ex- companies to weather the storm includes tapping into prospects plains, "High gearing is prevalent One Exchange Square, London while also preparing for the offered by the current market in most oil and gas companies, changes that are likely to occur mispricing. Moreover, liquidity not just in Malaysia, but around in the months ahead. To weath- management at PNB has been en- the world due to the capital-in- which would mean that PNB is the excess rights shares not taken er through the current storm, hanced significantly to allow for tensive nature of the industry." sitting on a large paper loss. up by other shareholders. it is important for the compa- flexibility in the management of "Demand is, however, cyclical To recap, UMW Oil & Gas nies concerned to work together our investment portfolio," it says. PNB's large stakes in Sapura depending on conditions in the (now Velesto) was a 55.7% unit with lenders to formulate their The government-linked invest- Energy and Velesto global economy and this can be of PNB-controlled UMW Hold- financing structure and terms to ment company (GLIC) adds that PNB's 38.21% shareholding came made worse by any supply mis- ings Bhd. A demerger of UMW manage the exceptional circum- its participation in the domestic about after Sapura Energy raised match. While there maybe fun- Holdings and UMW Oil & Gas in stances confronting the industry. equity market accounts for 68% RM4 billion in a cash call — RM3 damental shifts that may take October 2017 resulted in the for- For example, matching the loan of its portfolio, and in the recent billion from a five-for-three re- place, the demand for oil and gas mer's 55.7% being transferred to horizon with the long-term na- year, it has diversified into other nounceable rights issue at 30 sen, is by no means expected to dis- PNB,making it a direct subsidiary. ture of the assets," PNB says. asset classes, including fixed in- and RM1 billion via a two-for-five appear in the near and medium However, a check on UMW Oil "This may also include mak- come and real estate. renounceable rights issue of new term," says PNB. & Gas' 2016 annual report indicates ing difficult decisions to monet- PNB's website shows that its Islamic redeemable convertible In May 2017, Velesto (then that PNB and its various Aman- ise assets or to implement other investments are broken down preference shares at 41 sen each. known as UMW Oil & Gas Corp ah Saham funds had at least 68% aggressive cost-cutting meas- into 13 core and 11 strategic com- In total, PNB forked out RM2.68 Bhd) proposed a 14-for-five rights of the company as at end-March ures. What is key for companies panies, among a host of other billion in early 2019, which seems issue of more than 6.05 billion 2017, which means it was not a is to be transparent to the lenders assets, including properties (see huge but is less than 1% of its new shares (4.84 billion rights straightforward matter of PNB and bankers on the company's table). fund size of close to RM300 bil- shares and 1.22 billion Islamic re- taking up the rights issue for the requirements. This is the time lion as at end-2018. deemable convertible preference 55.7% shareholding as the largest when companies with good bal- Oil and gas investments in Nevertheless, last Wednesday, shares) at 30 sen apiece to raise shareholder. UMW Oil & Gas' 2017 ance sheets, and good leadership the spotlight Sapura Energy ended trading at RM1.8 billion, largely to reduce annual report indicates that PNB and resilience will persevere to Apart from national oil compa- 8 sen a share, giving it a market debt and finance costs. PNB and and its funds held 61.98% in the ride out this difficult period," it ny Petroliam Nasional Bhd, the capitalisation of RM1.28 billion, its units also undertook to acquire company as at end-March 2018. sums up. B VALUATOR

Company(Brand) Mention Tone ROI Axiata Group (Axiata Group) 1 0 RM 0 Bernama - MREM (Bernama - MREM 6) 2 0 RM 0 Bernama - MREM (Bernama - MREM 7) 4 0 RM 0 Bernama - MREM (Bernama - MREM) 1 0 RM 0 BIMB Holdings Bhd (BHB) (BIMB Holdings Bhd (BHB)) 1 0 RM 0 Bumi Armada Berhad (Bumi Armada Berhad) 4 0 RM 0 Chemical (Chemical) 33 0 RM 0 Chemical Company of Malaysia Bhd (CCM) (Chemical Company of 1 0 RM 0 CIMB Group (CIMB Classic) 1 0 RM 0 CIMB Group (CIMB Wholesale Banking ) 2 0 RM 0 CIMB Group Competitors (RHB Wholesale Banking) 1 0 RM 0 CIMB Investment Bank Berhad (CIMB - Banking & Finance Industry) 6 0 RM 0 CIMB Investment Bank Berhad (CIMB - Economy News) 2 0 RM 0 Covid- 19 - Malaysia (Covid- 19 - Malaysia) 3 0 RM 0 Current Affairs - MOFA (Petronas - MOFA) 6 0 RM 0 Gamuda Bhd (Gamuda Bhd) 3 0 RM 0 Gamuda Water & Dam News (Gamuda Water & Dam News) 1 0 RM 0 HeiTech Padu Berhad (HeiTech Padu Berhad) 1 0 RM 0 Hibiscus Petroleum Berhad (Hibiscus Petroleum - Bumi Armada) 4 0 RM 0 Hibiscus Petroleum Berhad (Hibiscus Petroleum - Sapura Energy) 10 0 RM 0 Hotel Equatorial Kuala Lumpur (Hotel Equatorial Kuala Lumpur) 7 0 RM 0 Hotel Equatorial Management Sdn Bhd (Hotel Equatorial) 1 0 RM 0 Hotel Equatorial Penang (Hotel Equatorial Penang) 1 0 RM 0 Hotel Jen (Hotel Jen) 1 0 RM 0 Hotel Perdana (Hotel Perdana ) 1 0 RM 0 Hotel Perdana, Kota Bahru (Hotel Perdana, Kota Bahru) 1 0 RM 0 Hotel Sri Petaling (Hotel Sri Petaling) 1 0 RM 0 IJM Corporation Bhd (IJM Corporation Berhad) 3 0 RM 0 Industry News for Nestle - Sports (Industry News for Nestle - Sports) 1 0 RM 0 IOI Corp (IOI Corp) 1 0 RM 0 KWAP-Industry News (KWAP-Industry News) 6 0 RM 0 Mah Sing Group Berhad (Industry News) (Mah Sing Group Berhad 8 0 RM 0 Malayan Banking Berhad (Malayan Banking Berhad) 1 0 RM 0 Malaysia Building Society Bhd (MBSB) (Malaysia Building Society Bhd 2 0 RM 0 Malaysia International Shipping Corporation Bhd (MISC) (Malaysia 2 0 RM 0 MMC Corporation Berhad (MMC Corporation Berhad) 3 0 RM 0 MNRB Holdings Bhd (MNRB Holdings Bhd) 1 0 RM 0 Oil Price (Oil Price ) 3 0 RM 0 Organization of the Petroleum Exporting Countries (OPEC) 3 0 RM 0 Penang Port (Penang Port) 1 0 RM 0 Permodalan Nasional Berhad (PNB) (Permodalan Nasional Berhad 9 0 RM 0 PETRONAS Carigali Sdn Bhd (PETRONAS Carigali Sdn Bhd) 12 0 RM 0 PETRONAS Chemicals Group (PCG) (Petronas Chemicals Group 1 0 RM 0 PETRONAS Dagangan Berhad (PDB) (PETRONAS Dagangan Berhad 1 0 RM 0 PETRONAS Gas Sdn Bhd (PETRONAS Gas Bhd (PGB)) 1 0 RM 0 RHB Bank Berhad (RHB Bank Bhd) 5 0 RM 0 S P Setia Berhad (S P Setia Berhad) 1 0 RM 0 S P Setia Berhad Group - Gamuda Berhad (S P Setia Berhad Group - 1 0 RM 0 S P Setia Berhad Group (S P Setia Shares) 2 0 RM 0 Sapura Energy Sdn Bhd (Sapura Energy Sdn Bhd) 10 0 RM 0 SapuraKencana Petroleum Berhad (SapuraKencana Petroleum 10 0 RM 0 Securities Commission Malaysia (Malaysia Capital Market) 2 0 RM 0 Serba Dinamik (Serba Dinamik) 1 0 RM 0 Shell Industry News (Shell Industry News) 11 0 RM 0 Sime Darby Berhad (Sime Darby Berhad) 1 0 RM 0 Sime Darby LPGA (Sime Darby LPGA) 1 0 RM 0 Sime Darby Plantation (Sime Darby Plantation) 1 0 RM 0 Sime Darby Property - Gamuda Berhad (Sime Darby Property - 1 0 RM 0 Sime Darby Property (Sime Darby Property) 1 0 RM 0 Singapore Air Show (Singapore Air Show - Industry News 1) 14 0 RM 0 SP Setia - Paramount monitoring (SP Setia - Paramount monitoring) 1 0 RM 0 Star Reacher - Coronavirus (Star Reacher - Coronavirus) 2 0 RM 0 Telekom Malaysia Bhd (TM Berhad) (Telekom Malaysia Bhd (TM 5 0 RM 0 Tenaga Nasional Berhad (TNB) (Tenaga Nasional ) 1 0 RM 0 The Edge Communications Sdn Bhd (The Edge ) 1 0 RM 0 UMW Group (UMW Group) 5 0 RM 0 UMW Holdings Bhd (UMW Holdings Bhd) 3 0 RM 0 UMW OIL & GAS CORPORATION BERHAD (UMW OIL & GAS 5 0 RM 0 UTMSPACE (UTMSPACE) 1 0 RM 0 Velesto Energy Berhad (Velesto Energy Berhad) 2 0 RM 0 Villamas - Industry News (Villamas - Industry News) 4 0 RM 0