Titan Petrochemicals banks on returns from US$170m acquisition
Eric Ng in Quanzhou
Titan Petrochemicals Group, which will seek shareholders' consent this Friday to buy a new shipbuilding, repair and offshore oilfield engineering business from its majority shareholder for US$170 million, expects the business to return its investment within five years, said chief executive Barry Cheung Chun-yuen.
Hit by sinking crude oil transportation tanker rates, the oil supply, storage and transportation firm has been disposing of its crude oil tankers - many of which are single-hulled and will become obsolete in several years due to regulations - and re-deploy investment into oil supply, bunkering and storage.
Titan plans to buy a 110-hectare shipyard in the deep-water port of Quanzhou in Fujian province from parent Titan Oil, which is controlled by Singaporean businessman Tsoi Tin Chun.
At an investment cost of US$330 million, the shipyard will focus on ship repair and is expected to become one of the mainland's biggest repair yards with the capacity of one million dead-weight tonnes of annual throughput.
Some US$100 million has been invested in the project which is 30 per cent equity-financed; the balance is debt-financed.
Mr Cheung noted that the shipbuilding, repair and offshore oil engineering businesses are experiencing a boom. Despite Titan being new to the field, he said the company had recruited talent from other established companies in the mainland and Singapore.
The mainland is the world's third-largest ship-builder while Singapore is biggest in ship repair and oil rig construction.
Titan Petrochemicals senior consultant Tan Mong Seng, a former president of Singapore's Sembawang Shipyard's engineering and construction group, said Titan Shipyard aimed to capture a 10 per cent share of the global market, targeting annual servicing of 3,000 vessels exceeding 50,000 dead-weight tonnes.
Scheduled to be completed by the end of 2009, Titan's ship repair yard will have an annual capacity for 200 vessels.
'Finding 200 vessels to dock at our shipyard is easy,' Mr Tan said but added that 'which 200' will determine the degree of success.
Tight supply of repair facilities has seen rivals Cosco Corp, China Merchants Group, China State Shipbuilding Corp expand their capacity along the mainland coast.
Titan's ship-building facilities, which focuses on speciality vessels such as bunker barges and chemical tankers, is expected to deliver two vessels this year, rising to as many as 10 next year and up to 12 in 2009.
It already has orders of 12 vessels from Titan Petrochemicals and 10 from parent Titan Oil worth a combined US$210 million. The orders from Titan Oil are for third parties with financing from Titan Oil which has agreed not to place more such orders to avoid connected transactions with Titan Petrochemicals.
Mr Cheung projected the repair operation to account for around 40 per cent of Titan Shipyard's turnover in the first few years, with ship-building taking up 35 per cent and offshore oilfield engineering the rest.
In terms of gross margins, Mr Tan said major ship repairers make 30 per cent to 40 per cent, while shipbuilders command less due to the high costs of raw materials.