Lubricant maker UGL to acquire Indonesian plant

PLI sits on a 4.15ha plot 95km west of Jakarta, of which 2.6ha is built up with tank farms and a jetty, leaving 1.5ha of space free for expansion. The factory is owned by UGL's executive director, Ms Ety Wiranto, and her siblings.
PLI sits on a 4.15ha plot 95km west of Jakarta, of which 2.6ha is built up with tank farms and a jetty, leaving 1.5ha of space free for expansion. The factory is owned by UGL's executive director, Ms Ety Wiranto, and her siblings.PHOTO: UNITED GLOBAL

United Global paying $18.2m for 95% stake in Pacific Lubritama Indonesia, which is twice its Tuas plant's size

Lubricant manufacturer United Global (UGL) is acquiring an Indonesian lubricant factory twice the size of its existing United Oil Company plant in Tuas after shareholders yesterday gave the green light for the purchase.

The factory, Pacific Lubritama Indonesia (PLI), is owned by UGL's executive director, Ms Ety Wiranto, and her siblings. In 2003, UGL helped build the PLI plant with the condition that PLI would buy raw materials from UGL.

UGL chief executive Jacky Tan told The Straits Times yesterday: "It (PLI) has been there for the past 14 years, and we should have done much better with (its) facilities, (its) networks. The very first thing I'm going to do is to restructure (its) sales team." PLI will start contributing to the group's earnings growth in the next six months, he said.

"Their blending capacity is double and their filling capacity is triple of what we have in Singapore.

"To me, 75 to 80 per cent utilisation is optimum. Singapore is doing about 65 per cent. PLI has been doing 40 to 50 per cent for the last six months. So that means (it is) quite relaxed, (but) we have seen a lot of improvement in the past six months.

"There is a lot of growth. New customers, new distributors. The big users are coming back, mining is picking up," said Mr Tan, who is married to Ms Wiranto and started UGL in 1999 with his father-in-law.

UGL is paying $18.2 million for a 95 per cent stake in PLI, funded through IPO proceeds and a $10 million share placement.

The price implied a price-to-earnings (PE) ratio of 6.16 times for PLI, versus UGL's own PE ratio of 9.81 at the time. PLI sits on a 4.15ha plot 95km west of Jakarta, of which 2.6ha is built up with tank farms and a jetty, leaving 1.5ha of space free for expansion.

UGL derives about 30 per cent of total sales from PLI.

UGL would buy polymers known as viscosity index improvers from oil majors, and sell these raw materials to PLI. PLI would dissolve and process the raw materials using equipment like steam boilers that UGL's Singapore plant does not have, and sell the processed additives and lubricants back to UGL.

"By buying the raw materials in the solid form and doing our own dissolving, we have a lot of cost savings," Mr Tan said.

UGL usually accounts for less than 10 per cent of PLI's annual revenues, except for last year, when UGL accounted for 15 to 20 per cent, Mr Tan said. That is because PLI lost a big customer, Total, in the second half of 2015.

"But the margins were so minimal, it's just like labour cost. Those oil majors will squeeze you until (your margins are) basically nothing. So I told them we can live without Total and you have that spare capacity to explore new business," he said.

UGL was listed on the Catalist board in July last year. Shortly later, in August, it announced that it was looking into acquiring PLI.

On why the consolidation had not been done prior to UGL's listing, given that both entities were owned by the Wiranto family, Mr Tan said: "They (PLI) were not ready. They had to tie up a lot of internal issues, internal audits, so if we were to wait for them, I think we would get listed only this year."

The counter closed unchanged at 34 cents yesterday.

A version of this article appeared in the print edition of The Straits Times on June 22, 2017, with the headline 'Lubricant maker UGL to acquire Indonesian plant'. Print Edition | Subscribe