Perdana Petroleum a strong M&A candidate

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LIKELY CANDIDATE: Image features Perdana Petroleum’s Horizon AHTS. DEHB’s exposure to the group’s AHTS can speed up the former’s potential involvement in marginal oilfields in future, thus making it a potential investor in the proposed 10-per cent private placement of new ordinary shares.

KUCHING: Perdana Petroleum Bhd (Perdana Petroleum) proves to be an attractive candidate to be partially- or wholly-taken over, in light of assets owned that are vital to the development of the country’s oil and gas (O&G) industry.

Following the group’s proposed announcement to undertake a private placement of new ordinary shares of RM0.50 each in the company to third party investors, OSK Research Sdn Bhd (OSK Research) analyst Jason Yap believed that Perdana Petroleum was a strong prospect to hold on to going forward

“The group remains an appealing bid premised on its assets like its anchor handling tug supply (AHTS), work barges and work boats that will facilitate the development of the country’s O&G industry.

“This, along with its fragmented shareholding structure makes it a strategic player in the field. I think Perdana Petroleum is a good target to watch out for now and we would not be surprised if the placement of shares is given to a single party,” he told The Borneo Post in a recent phone interview, without naming any particular company.

Notably, these placement of shares would represent up to 10 per cent of Perdana Petroleum’s issued and paid-up share capital.

On the other hand, HwangDBS Vickers Research Sdn Bhd (HwangDBS Vickers Research) had indicated that amongst potential parties to buy into these proposed shares would be Sarawak-based O&G services provider Dayang Enterprise Holdings Bhd (DEHB).

“We believe DEHB could be a potential given that both parties have announced earlier that they are exploring potential collaboration, including DEHB acquiring a strategic stake in Perdana Petroleum.

“If that comes true, DEHB may be able to tap on Perdana’s new fleet of 13 vessels to bid for more topside maintenance and hook-up commissioning contracts going forward. Perdana Petroleum may also strengthen its balance sheet that stand at a net gearing of 42 per cent as at the second quarter of this year (2Q11).

“The proposed private placement is expected to be completed by 4Q11. We expect DEHB’s share of profit from Perdana to be minimal in financial year 2012, with only an estimated three per cent increment to Dayang’s projected pretax profit of RM117 million,” said the analyst.

Assuming that Perdana Petroleum shares were placed out to DEHB at November 15’s closing price of RM0.835, DEHB had to fork out RM37.6 million which could be paid off with its cash pile of RM188 million as at 2Q11.

Tie-up between both companies would appear favourable to DEHB as the group’s four work boats had been fully utilised, while Perdana Petroleum was experiencing a low utilisation rate on its four work barges and three work boats.

Groups who were exposed to marginal oilfield services or owned a fabrication or repair and maintenance yard would strike as potential alliances to DEHB. Firms who provided vessel support were also in the list of interest to the company, according to media statements.

As such, DEHB’s exposure to Perdana Petroleum’s AHTS fleet could speed up its potential involvement in marginal oilfields in future.

Moving ahead, the range of placement of Perdana Petroleum’s new shares would depend on whether the group’s existing warrant holders wished to exercise their rights to convert their warrants to the mother share.

On this, Yap opined that the group would most likely place an estimated 45 million to 51 million new shares out.

“There are currently 61 million outstanding warrants with a one-for-one conversion at a strike price of RM1. It is our view that warrant holders are unlikely to want to convert since the warrant is now trading at an 83-per cent premium, and is thus out-of-the-money.

“Hence, it is likely that only 45 million new Perdana shares would be placed out. Assuming a share placement price of RM0.835, Perdana would be able to raise gross proceeds of about RM38 million,” he said.

Nevertheless, Yap was of the view that the placement price would not be at more than a 10-per cent discount based on the volume weighted average market price of Perdana Petroleum’s shares for five days immediately preceding the price fixing date. However, the price as he noted would definitely be higher than its par value of RM0.50.

The proceeds from these would include paying the lease rental of its vessels, dry-docking, the repair and maintenance of vessels, mobilisation and installation cost of new delivery as well as administrative and operating expenses.

“Given that the proposed utilisation of the placement proceeds does not include the repayment of bank borrowings, we do not expect any interest savings on borrowings.

“Besides, the amount raised is small in relation to its borrowings amounting to RM267 million as at 30 June this year, representing only about 17 per cent of the total,” Yap pointed out.