As previously announced on 1 February 2016, Shell Overseas Holdings Limited (SOHL) has reached a conditional agreement with Malaysia Hengyuan International Limited (MHIL) for the sale of its 51% shareholding in the Shell Refining Company (SRC) in Malaysia for $66.3 million. Although SOHL would normally not comment further on a private transaction, given the high level of interest, on this occasion SOHL would like to give some further information related to the sale.

Shell Downstream strategy

The sale of SRC by SOHL should be seen in the context of Shell’s global strategy and portfolio activities.

The Shell Downstream strategy has been to concentrate the footprint on a smaller number of assets where it can be most competitive. As a result of this strategy, Shell has also been reducing its refinery footprint and recent examples include the sale of refineries in Norway, the Czech Republic, the United Kingdom, France and Germany. A refinery of SRC’s scale is no longer a strategic fit for Shell’s portfolio and would find it difficult to compete for new capital.

Shell Refining Company in Malaysia

SRC reports the financial information of the company externally on a quarterly basis, and this information is publically available via the Bursa website. As can be seen in these reports, SRC reported a profit for the nine months ending 30 September 2015. However, it should also be taken into account that SRC has been loss making over the period 2011 – 2014. Furthermore, in SOHL’s view SRC requires significant investment to meet Euro 4 and Euro 5 product specifications and it has significant existing debt of MYR 1.2 billion maturing in the near future.

Therefore two options have been explored being a Terminal Conversion led by SRC and a sale by SOHL to a buyer that is willing to invest in Euro 4 and Euro 5 and that can procure new long term financing to SRC.

Robust Sale Process

SOHL has undertaken a comprehensive and robust sale process subjecting bidders to a number of requirements including technical and operating capability, financial capacity for both funding of the acquisition as well as refinancing SRC’s existing debt, and future investments required to meet Euro 4 and Euro 5 fuels specifications.

SOHL started this sales process early 2015, which was supported by a reputable international financial advisor. A wide range of international and Malaysian prospective buyers were engaged in a two stage competitive process, and detailed discussions in respect of a number of requirements including technical, operational and financial capability were held with a number of the prospective buyers.

SOHL held detailed discussions with a Malaysian prospective buyer in 2015 for a potential acquisition of SOHL’s shares in SRC, but they were not able to meet the requirements in respect of funding the acquisition and the refinancing of SRC's debt. At the end of the competitive process, Malaysia Hengyuan International Ltd (MHIL) was the highest bidder that was able to meet all criteria, including funding of the acquisition as well as refinancing of SRC's debt.

MHIL Offer Price

The MHIL offer price is the outcome of the above competitive process. The price is acceptable to the Board of SOHL, taking into account SRC’s current assets, SRC’s debt and new financing arranged by MHIL, SOHL’s views on future refining margins, and future investments required to meet Euro 4 and Euro 5 fuel specifications. As reported by several media sources the offer price by MHIL is in line with the book (equity) value per share of MYR 1.93 in the publicly available financial statements as at 30 September 2015.


SOHL has run a comprehensive, competitive and robust sales process, the result of which has been that MHIL was the highest bidder that was able to meet all criteria, including funding of the acquisition as well as refinancing of SRC's debt.


Cindy Lopez

Head, South East Asia/South Asia, Media Relations

Sonia Meyer

Shell Spokesperson

Royal Dutch Shell plc

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