RI sand ruling set back SembCorp Industries unit
RI sand ruling set back SembCorp Industries unit
Dow Jones, Singapore
A suspension of a key supply contract from Indonesia will likely result in SembCorp Industries Ltd.'s engineering and construction unit missing earnings growth targets, a top executive told Dow Jones Newswires Monday.
Unit Chief Executive Paul Chain's remarks are in sharp contrast to the rosy picture SembCorp Industries had painted for the unit earlier this year, and should disappoint many analysts who had expected Southeast Asia's largest civil engineering company to enjoy a bumper year in 2002.
The unit, called SembCorp Engineers & Constructors, started the year with expectations that its net profit should almost double on-year to around S$10 million (US$5.5 million) in 2002.
However, Chain said the company "may have a bit of problem" meeting that target after the Indonesian government recently suspended sand supply for the company's S$200 million sea reclamation contract awarded by the Singapore government.
The reclamation project, which commenced last year, has been put on hold during the past two to three months after the Indonesian government stopped the supply to review its sand export policies.
"This year would be the mature year for the project and we are expecting it to turn in a substantial profit. But if that substantial profit is going to turn into a loss, that's going to have some impact on us," Chain said.
"The Indonesians stopped the sand supply. We will incur costs in terms of the overheads...We do see there's a downside possibility," he said.
Chain said the halt to the Indonesian sand supply "may drag on for a while." "At the same time, we don't know how the (Singapore) government is going to react to it.
"At this point, I don't think we will go into the red. But also, it's not likely that we will make the S$10 million either," he said.
When asked whether the 2002 earnings will at least surpass the S$5.6 million recorded last year, Chain said "we don't want to make that commitment."