Hong Kong project to fetch returns of over 10%: Sembawang

Engineering company Punj Lloyd gained more than 2 percent on Thursday as its subsidiary Sembawang Engineers and Constructors received its first project in Hong Kong to build MTR Corporation's Shatin to Central Link Diamond Hill Station.

The project worth over Rs 1,168 crore will be executed by Sembawang along with consortium partner Leader Civil Engineering Corporation. Richard Grosvenor, president & chief executive officer, Sembawang Engineers & Constructors told CNBC-TV18, this is company's maiden order from in Hong Kong.

"The project is worth more than USD 200 million. It is a significant entry point for us. We will generate overall returns of more than 10 percent," he added.

Below is the edited transcript of Grosvenor’s interview to CNBC-TV18.

Q: The latest order is to build MTR Corporation’s Shatin to Central Link Diamond Hill Station. What exactly is the time-line of this order and normally what kind of margins do you make in this kind of a project?

A: The order is with the Hong Kong MTR Corporation. It is the first time Sembawang or indeed Singapore money has penetrated the Hong Kong markets. The project is worth more than USD 200 million. It is a significant entry point for us. We have for three years being using the principles of three Ps- people, presence, and persistence.

We generate returns overall of more than 10 percent. Sembawang is a boutique, global project underwriting organisation. Therefore, we are quite selective about what we pursue. This Hong Kong entry marks for us the right projects at the right time. It is a bit of a catch-22 as in most jurisdictions you enter, you have to have local experience before you can play the game.

Q: You returns on this project will be 10 percent?

A: Yes, collectively, on all our projects over the last five years our returns in Sembawang are consistently over 10 percent at the bottom-line.

Q: What exactly would it take your order book to win this region?

A: Now, we would have work on hand in USD 750 million to one billion but it is actually on the cusp of the major work in Hong Kong where we are looking at two USD 1 billion projects now.

In Hong Kong, on these two projects, the award is not based on price alone. About 40 percent of the rating goes to your technical presentation, because we are a boutique operator. We have A-grade teams and we look to score highly in that area. Each point is worth 30 million Hong Kong dollars in technicals. So, it sorts the desperados out from the professionals.

Q: How lucrative a market is Hong Kong? Why is the entry into Hong Kong so important? How much are you bidding for? Are the margins higher? Take us through how important this market could be for you?

A: Internationally, the conditions there are getting bleaker. There is a lot of desperate activity in Europe where the construction companies are heading to anywhere they can to get relief. Consequently, markets have collapsed in some areas to break-even at the project level. We do not indulge in that. It takes disciplined action. We always hunt for where we can apply edge.

To answer your question about Hong Kong, it is a market like any other, where it can be the worse of times and it could be the best of times, depending on the targets you select.

Q: There are a few more projects you are looking at in Hong Kong and that could be about a billion dollars. What may your order book be one year down the line? Does it look like it could be a lot more than the current one billion that you have?

A: Yes, because we are a boutique operator, we go for the lump of money on the bottom-line and there are many ways to get there. We have got two casinos in Singapore. We are now in Macau, holding discussions there and we have been doing that for sometime.

Hong Kong holds back promise for us. This is a strategic move. Three years ago, we saw conditions in Singapore toughening up with the entry of the Korean contractors. We are also focusing now on Indonesian operations where we are in mining. We have a thermal coal mine that is a steaming mine in Indonesia. The law in Indonesia has changed, so companies must process minerals and metals before they can export. We are heavily into that and so on a number of fronts, all graphs are up for Sembawang.