Saturday, 1 November 2014

Maybulk: large paperlosses on its investment in POSH

I have written many times about Maybulk and its investment (RPT) in POSH. Half a year ago POSH was (finally) listed on the SGX. Time to evaluate how things have worked out for Maybulk and POSH.

Each year Maybulk had booked profits on the acquisition, given that POSH is a 21% owned associate and POSH was making profits.

In Maybulk's last year report it is written:

Several analysts mentioned in 2013 that POSH's IPO would unlock the value for Maybulk's investment.

Given the above, what possibly could go wrong?

Actually quite a bit.

POSH's share has come down a lot, from its IPO price of S$ 1.15 to S$ 0.70, a 39% decrease in price.

On one side, the price of oil has come down, hitting all players in the oil & gas industry, either upstream or downstream. The more so, since many players in this industry have just recently invested in expansion.

On the other side, there are specific, negative, reasons for POSH, for instance:
  • The problems in Mexico;
  • The CFO has resigned, "to pursue other opportunities";
  • The utilisation rates of its fleet seems to be dropping;
  • A POSH vessel sunk, a tragic accident in which three employees died; Investor Central questioned the lack of transparency surrounding the event.

The current market cap for POSH is S$ 1.26 Billion, giving Maybulk's 21% holding a valuation of S$ 265 Million or RM 685M.

That is a far cry from the valuation in Maybulk's book of RM 1,225 Million, a difference of about RM 540 Million.

In other words, if Maybulk decided to mark its investment in POSH against the market price (which sounds pretty reasonable to me), then it has to account for a one-off loss of RM 540 Million.

Suddenly, the investment in POSH doesn't seem so "strategic" or "prudent" anymore. It simply sits on top of a huge paper loss, and that after six years.

Unfortunately for Maybulk's minority shareholders, it didn't have to be that way. Maybulk had an option to sell its shares in POSH for a 25% profit. An option it could have exercised less than one year ago. I wrote before about this issue and the disappointing way it was handled.

The current valuation of POSH also puts severe question marks towards Maybulk's acquisition itself and the price it paid for it, almost six years ago. An acquisition made in the midst of the worst global recession of the last 50 years. To make an investment in that climate, where basically everything was dirt cheap, and then to sit on a significant paper loss six years down the road sounds pretty bad.

On top of that, Maybulk has even increased its investment, by subscribing to additional shares at POSH's IPO, for which Maybulk went into debt. The huge cash position that it had six years ago being depleted due to the investment in its associate, a cash layout of more than RM 1 Billion.

The above might be a partial explanation (its existing business has also done quite disappointingly) why Maybulk's share has performed so poorly, both in the long term and over the last half year. Between 2007 and 2011 the share was often trading around RM 3, now it is only about half of that:


  1. Hi MA,

    Looks like POSH is not so "Posh"?
    Paxocean yards may give POSH further Drag.


  2. Agree, no so "posh".

    Thanks, I noticed:

    Any update on Paxocean?

    1. Hi MA,


      But heard the cancelled asset burden is on Dubai Drydocks not Paxocean.

  3. Thanks, interesting, also in the related story:

    "Sensationally proving that not every OSV venture is paved with gold, Hallin Marine has closed down. Just four years after Superior Energy Services bought the company from its founder, John Giddens, for more than £100m, the American firm has decided to ditch it, citing its unprofitability. All staff of the Singapore-based firm have been laid off and a newbuild order has been cancelled."

    1. Hi M.A.

      Hallin vessel is more subsea and diving support unlike the traditional AHTS / PSV etc.

      Indeed. Aside from sector impact, bear in mind that a company is afterall managed by people, understanding of the business and cultures etc etc Hallin under John Gidden is profitable. Just like Pan U and Labroy prior to DDW acquisition.

      John Giddens partnered M3 and re-venture into the sector again. Anyway old news already in the industry.