THHE’s Deep Producer 1: The Titanic of sinking public funds?

THHE acquired Deep Producer I, previously known as MT Laurita, in mid-2011 for US$82.5 million. (drydocks.gov.ae pic)

PETALING JAYA: A fifth extension of time granted by Bursa Malaysia for TH Heavy Engineering Berhad (THHE) to present its regularisation plan simply means that questions of accountability in the use of public funds will remain unanswered for the foreseeable future.

Despite intense scrutiny for blowing an eye-watering RM1 billion on the purchase, conversion and maintenance of the sea vessel Deep Producer 1, THHE has yet to make public the full extent of its financial exposure nor come up with a viable plan to mitigate its losses.

Those losses are likely to be compounded by a court auction in the United Arab Emirates this month on account of THHE’s failure to pay dry dock and related charges of US$6.2 million.

Questions are being asked as to why THHE, which has the finance ministry as its ultimate shareholder, would allow the loss of the vessel for such a paltry sum given the gargantuan investment ploughed in.

Previously known as MT Laurita, the vessel was a distressed asset acquired in mid-2011 for US$82.5 million (RM364.4 million), a price well below independent market valuations of between US$130 million and US$140 million obtained at the time.

The purchase, however, was highly leveraged, with THHE taking out a massive financing facility to cover 90% of the acquisition price despite not having a plan in place for the vessel to generate income.

Eventually, in 2014, the company was thrown a lifeline when it secured a lucrative multi-year contract with JX Nippon Oil & Gas Exploration (Malaysia) Ltd (JXN), a joint venture between three Japanese entities and Petronas Carigali, which held a 25% stake.

Potentially worth up to RM2.7 billion, the contract involved leasing the vessel for use as a floating production storage and offloading (FPSO) unit to service the Layang Development Project off the coast of Sarawak.

This led the company to embark on an ambitious plan to convert the vessel into an FPSO unit.

Delays occurred due to THHE’s financial incapability to raise funding, and with only 42% of the conversion work completed by the scheduled handover date in June 2016, the company defaulted on the JXN contract.

By this time, THHE had incurred a staggering RM602 million debt to its appointed contractors which it was unable to meet, rendering the company insolvent and requiring a court-sanctioned scheme of arrangement to be entered with its creditors.

With THHE claiming that an additional US$107.2 million (RM 433.9 million) was needed to complete the vessel’s conversion, questions are being asked whether the company’s management ever considered the financial viability of the acquisition and purposing of the vessel before lavishing enormous public funds on the wasted project.

Questions are also being asked as to why a vessel worth US$82.5 million in 2011 on which a further RM602 million liability incurred, would suddenly not be worth saving, and why THHE would be willing to let it go under the auctioneer’s hammer for a mere 3% of its original value.

Where is the accountability for public funds?

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