Ramunia, Still Good?

The Edge Daily: MISC Bhd is seeking more time to complete its due diligence on fabricator Ramunia Holdings Bhd.

Officials of MISC had told analysts at a briefing on their latest set of results that they were seeking more time and was looking at end-2008 to complete the due diligence. Analysts said that no reason was given.

When announcing the proposed takeover of Ramunia in January this year, MISC had stated that it hoped to conclude the reverse takeover of the company by the fourth quarter of 2008. The national carrier was supposed to complete the due diligence by end-May.

Sunday, April 20, 2008

Ramunia???

When I highlighted Ramunia's plight acouple of weeks earlier, the share price held very firm and even went up... don't understand that at all unless the MISC RTO was green lighted. Recent market talk has it that:

a) Ramunia has extended the bid bond guarantee further till 15.05.2008 as it could not submit bank guarantee for RM69m .. if true, that is not good at all, second deferment.
b) It is learnt that two of the three foreign banks approached by Ramunia have refused financing the project... not good again, first local banks say NO, now this?
c) Possibly RTO has been abandoned by MISC and hence no bank is ready to finance the working capital requirement of Ramunia .. please re-read the posting on Ramunia to get the downside risk.
d) Due to poor balance sheet and credit rating, some vendors are not ready to supply the goods and services without letter of credit / advance payment by Ramunia.

While all of the above are still market whispers, it needs to be confirmed as the consequences ill be dire if even just one of the above was true.

a) MISC's bid came in at about the same time the project was secured. Hence it was likely that MISC would be aware that Ramunia had tendered for the project. It is very unlikely that MISC would walk away from Ramunia based on the Indian project. Hence MISC should go through with the RTO and would certainly vouch for the project.

b) Local banks walked away from funding the project because on its own, Ramunia's balance sheet would not be sufficiently strong enough to take on such a project. Foreign banks could be more open, but a lot would ride on MISC proceeding with its RTO. The fact that MISC has extended the due diligence is not a comfort factor. More sweating behind closed doors.

c) What's wrong with the Indian project? Isn't winning the project a good thing? Well, maybe yes, maybe no.

More on the Indian Project:

Following article appeared in IndianPetro.com

"The consortium of Ramunia Fabricators Sdn Bhd and Ramunia International Services Ltd has emerged as the L-1 bidder under ONGC`s tender for construction of facilities under its B-193 field development project. Notably, the Malaysian consortium`s quotation of US$683.827 million (Rs 2,710.01 crore) is around 1.54% lower than ONGC`s revised cost estimate of US$694.5 million for this project. However, there appears to be a wide variation with regard to the rates quoted by the L-2 and L-3 bidders under this tender as compared to Ramunia`s bid. The second-ranked bidder, Larsen & Toubro Ltd, had quoted a rate of US$982.046 million (Rs 3,891.85 crore) for this project, while L-3 bidder Punj Lloyd Ltd had demanded a fee of a whopping US$1.33 billion (Rs 5,281.25 crore) to take up the project. This indicates that the L-1 bid was 43.61% lower than the L-2 bid and almost a 100% lower than the L-3 bid."

Its no comfort for banks when they see the next closest bid at US$982mn and the next bid came in at US$1.33bn. Did Ramunia bid too low? Considering the work involve a lot of steel components - its a highly competitive bid. Plus, Ramunia expects a 10% margin only, not a lot of room for mistakes and cost over-runs. Even the awardeee company ONGC's cost estimate was very close to Ramunia's bid - very little margin. Even if Ramunia priced its bid correctly, its a very thin margin contract however you cut it.

d) Ramunia's share price would come under a lot of pressure at least until MISC OKs the RTO. The due diligence now is extended till mid-April, sellers will dominate till then. Unless some foreign banks is willing to bet on Ramunia, and MISC to say yes, prior to mid-April - Ramunia is in a spot of bother.

e) The question investors have to ask is without MISC's RTO where would Ramunia share price go to?

p/s photo: Karena Lam Kar Yan