PUNJ LLOYD: Grasping opportunities

12 May 2006
Talk to brokers at the Bombay Stock Exchange (BSE) about major new entrants on the bourse and Punj Lloyd (PLL) will feature prominently in the conversation. 'On the first day of trading, their share price increased 50 per cent,' says one. 'The talk around the bourse was that a second heavyweight contractor, after Larsen & Toubro [L&T India's largest engineering, procurement and construction (EPC) firm] had entered the BSE.' 'The downside was that [share] allotments were minimal and the issue closed in three days,' says another.

In late 2005, Indian engineering and construction company PLL opened its doors to investors, with the launch of its first initial public offering (IPO). Some 9 million shares, in the $13.03-15.20 price band, were on offer. 'The issue was over-subscribed 39 times and changed our financial profile,' says PLL chairman Atul Punj. 'It significantly improved our debt/equity ratio, allowing us to take advantage of organic and inorganic growth that was previously not within our capabilities.'

With a healthy response from the domestic market, PLL set its sights overseas. In early March, it announced the signing of an agreement with the London office of Citigroup Global Markets to float foreign currency

convertible bonds worth a total of $125 million. The flotation will carry a semi-annual coupon of 4.65 per cent and have a tenor of five years. The proceeds will primarily go towards financing ongoing capital expenditure, repayment of international debt, probable acquisitions outside India and investment in build-operate-transfer (BOT) projects. 'In 10 years from now, I would like to see ourselves present in all sectors of construction and as a dominant player in our geographical areas of operation,' Punj says.

PLL's expertise includes wellhead development, flowlines, on and offshore pipelines, storage tanks and terminals, process plants and civil infrastructure. Its areas of operation cover the Middle East, Africa, the Far East and the Caspian.

With oil prices reaching new heights of $70 a barrel last month and no let-up in project activity, the region is important for PLL. Although hardly a newcomer, having carried out several subcontracts in the past decade in the UAE, Oman and Qatar, PLL is now adopting a new strategy.

The raft of project activity in the past 18 months has meant some international EPC majors have increasingly had their capacities locked and are now unwilling to take on new orders. 'Risk management by global [EPC] contractors is now a big issue and they are passing it to subcontractors,' says Ash Bakshi, international president of PLL, based in London. 'This is the best opportunity for us to grow and move up the industry chain from being primarily a subcontractor to an EPC player.'

PLL has positioned itself to take advantage of the emerging trend. As part of efforts to beef up its engineering capability, a high-value engineering centre (HVAC) was opened in New Delhi two years ago. Comprising a multi-disciplinary team of nearly 100 engineers providing specialised design for cross-country and submarine pipelines, storage terminals, compressor stations and oil and gas process units, it is already working on major orders from clients including the UK's Amec, for its Sakhalin project in Russia, and Indian oil and gas companies for domestic ventures. Materials procurement agreements have been signed with vendors and manufacturers.

However, PLL's biggest asset will be the experience it has gathered by working in close association with leading international oil companies. It has completed several engineering and construction contracts in the Far East for France's Total. A key contract was the gas link between Indonesia and Singapore, which included the laying of on and offshore pipelines and related work. Closer to home, PLL has built liquefied natural gas (LNG) regasification terminals

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