Icon Offshore: rewarding the MD but diluting the minority shareholders?

Icon Offshore announced that it offered 14,000,000 shares to its MD from the ESGP (Employee Share Grant Plan).

I have some problem with this.

Icon IPO-ed three years ago at a retail price of RM 1.85. Since then it has not paid out any dividend at all, loyal shareholders who subscribed to the IPO are currently 75% under water.

In other words, if the share would rise to the IPO price of RM 1.85, minority shareholders would only be back at square one (not taking into account the opportunity cost), while the MD would be sitting on a tidy profit of RM 19,320,000 and that in addition to his normal wages.

Besides the usual problems that have plagued the oil & gas industry the last few years (we can't really blame anyone for that), there have been several other issues with Icon Offshore, I wrote about some of them before. I think there is a case to be made that Equinas (at least partially) might bare some responsibility for those problems.

Given that, is it really fair to dilute the minority shareholders further, and at such a low share price relative to the IPO price, even though the ESGP was approved?

Could the majority shareholder, Equinas, have made a gesture and for instance forked out the shares for the MD from their holding? That would have been rather unconventional, I admit, but I do like the idea.

Icon Offshore: former CEO "to focus on personal matters"

The company announced today:

To put in "a bit more perspective" why the formed CEO might have opted not to be re-elected, please read:

"Icon Offshore: CEO and COO remanded".

Icon Offshore is listed less than one year ago, and now already the CEO is gone.

People who invested in the company when it was listed will be very disappointed.

The share is currently trading at RM 0.53, a far cry from its IPO price of RM 1.85.

Icon Offshore: CEO and COO remanded (2)

Some more information on this matter due to a query from Bursa:


1) The financial and operational impact of the Remand

We do not expect the Remand to have any financial or operational impact to the group as our Deputy Chief Executive Officer, Captain Hassan bin Ali (“Captain Hassan”) continues to be responsible for the day-to-day management of our Company as well as the co-ordination of the administrative and business activities of our group.


2) The steps taken and to be taken to ensure that the operations/business of the Company/group is not adversely affected while the CEO and COO are being remanded

In the absence of the Chief Executive Officer, Captain Hassan, as the Deputy CEO ("Deputy CEO")   has assumed the functions of the CEO with effect from 22 April 2015, in addition to his existing responsibilities. In light of the development, our Company has engaged our stakeholders, namely our customers and lenders to appraise them of the matter and at the same time, provide assurance to our stakeholders that it is business as usual for our group under the stewardship of our Deputy CEO. 


3) Duration of the Remand

We have been informed by the legal counsel representing the CEO and COO that the Remand is for a duration of three (3) days until 24 April 2015.

Unfortunately still no information what it is all about, we need to wait for that.

Icon Offshore: CEO and COO remanded

Quite shocking announcement by the company:


"To ensure fair market trading, the Board of Directors wishes to inform that Suruhanjaya Pencegah Rasuah Malaysia (“SPRM”) has remanded our Chief Executive Officer and Chief Operating Officer to facilitate and assist investigations currently being conducted by SPRM. The company has no details of the nature of the investigations or their status."


We have to wait for more news regarding this matter.

Noteworthy is that the CEO has lately been selling shares in the company.

"all the IPOs this year were making money for investors", really? (2)

According to an article in The Edge (December 22, 2014) named "A dreary year for listings" 14 companies IPO-ed in 2014 on Bursa.

Excluding Only World Group (which just listed) the results are:

• 3 are in positive area
• 2 have the same price as the IPO
• 8 have gone down, some considerably

That is not exactly a good score. Bearish sentiment on Bursa and in particular in the Oil & Gas industry have played an important role.

Icon Offshore was the worst performer, I wrote some cautious words about the company before.

Last year I wrote about an article in The Star, where the following quote was made:


"RHB Investment Bank Bhd director and regional head of equity capital markets Gan Kim Khoon recently said that investors should ride on the wave of Malaysia’s IPO market, but only after doing their homework on the new entrants.

He noted that all the IPOs this year were making money for investors and said this trend was likely to continue next year, when speaking at a recent panel discussion on the prospects for next year’s equity market."


That all IPO's made money in 2013 was simply not true.

And some of those listed companies did rather bad in 2014, for instance China Automobile Parts, AirAsia X, Sona Petroleum, Caring Pharmacy Group and UMW Oil & Gas.

But the advice to "ride the wave of Malaysia's IPO market" in 2014 also seems dubious, with hindsight, as the above results show.

Five years of booming share market have led to too much financial engineering, too much hot air being injected in soon to be listed companies, too much focus on the Oil & Gas industry.

Not surprisingly, things have come down to more realistic levels.


Wishing all readers Happy Holidays.

Tanjung Offshore: some shareholder activism

Update: please check out this blog for all oil & gas related matters.


Tanjung Offshore has been in the news lately.

First of all there is an article in The Star: "A tale of two waivers".


Waivers should only be granted in exceptional and extenuating circumstances. One wonders what is the basis for Tanjung Offshore Bhd asking for two significant waivers: one from Ekuiti Nasional Bhd (Ekuinas) against a non-competing clause and another from the Securities Commission (SC) to waive the requirement for Tanjung Offshore’s new shareholders from having to make a mandatory general offer (MGO) despite buying up more than 33% of the company.

To recap, Tanjung Offshore has reportedly already asked Ekuinas to waive the clause (that was inked back in 2012 when the fund bought the offshore support vessels business from Tanjung Offshore) that prohibits Tanjung Offshore from getting into a similar business until mid-2015.

Tanjung Offshore is in the midst of a reverse takeover (RTO) exercise that will see it buying marine vessels from several parties who would end up with more than 33% of the company. Tanjung Offshore is seeking a waiver from the MGO rule. A group of minority shareholders, on the other hand, are opposing this.

It is difficult to fathom why Ekuinas should grant Tanjung Offshore a waiver. Ekuinas had done right by including the non-competitive clause after paying a whopping RM220mil for Tanjung Offshore’s OSV assets.
 
Ekuinas’ planned floatation of Icon Offshore Bhd (which is essentially the asset it had acquired from Tanjung Offshore) already has some challenges in the form of seemingly toppish valuations and one report questioning the certification of some of Icon Offshore’s vessels. The last thing it would need is having another competitor creep into the same sector.

As far as the MGO waiver is concerned, it should be opposed as minority shareholders should be protected in this deal by offering them a chance to exit the business at the same price the new shareholders are buying into the company.


I like to draw the readers attention to the word "whopping". To put things in perspective, these assets were injected into Icon Offshore, a company that will IPO at a valuation of RM 2.2 Billion. In other words exactly ten times the price that Tanjung received for its assets. I have to admit, there were other assets in Icon Offshore, and Ekuinas might have injected funds or loans into Icon Offshore. But still, there is a huge valuation gap, and I would not immediately assume that Tanjung received a whopping amount. My guess is that the deal in 2012 was very good for Ekuinas, not so much for Tanjung Offshore. That assumption is also based on the fact that part of the IPO proceeds of Icon Offshore will go towards its existing shareholders and part will be used to shore up its balance sheet.

One group of Tanjung Offshore minority shareholders seems to have this same opinion, according to this article in The Malaysian Insider: "16 minority shareholders oppose Tanjung deal, say they are shortchanged".


“The directors have a bad track record when it comes to striking deals, and this transaction does not look good,” Chuah told The Malaysian Insider yesterday.


My guess is that Chuah was referring to the sale of its assets to Ekuinas in 2012.


"If Tanjung is exempted from the MGO, the new owner or investor will become the controlling shareholder. This means we don't have the option of cashing out and will have to go along with whatever deal that is struck.” Chuah said that with the RTO, Tanjung is expected to return to the same business it disposed of two years ago, as Bourbon is involved in marine vessel services. Chuah fears that the minority shareholders would be asked to cough out extra cash in order to complete the deal, and questioned why they were excluded from the deal.


The CI is currently in record territory, but the share price of Tanjung Offshore has languished, despite being in an industry that is perceived to be quite "hot" these days. The company did pay out a dividend of RM 0.44 in 2012, which explains the sudden drop (the share going "ex"), but other then that, the share has performed very disappointingly. Another indication that things have not gone very well for the company.

 

 

For me, I have some doubts about the industry. The perception seems to be that there will be lots of growth due to "juicy" contracts by PETRONAS. I doubt that these contracts will be that juicy. Next to that, it seems every single company in this business is raising money to further increase its fleet. Somehow or the other, that doesn't make much sense. And lastly, activities onshore have hugely increased (for instance in North-America) recently through the use of "fracking":

 

 

Hydraulic fracturing is the fracturing of rock by a pressurized liquid. Some hydraulic fractures form naturally—certain veins or dikes are examples. Induced hydraulic fracturing (also hydrofracturing, fracking, and fraccing) is a mining technique in which a high-pressure liquid fluid (usually water mixed with sand and chemicals) is injected to a wellbore in order to create small fractures (usually less than 1.0 mm wide) in the deep-rock formations in order to allow natural gas, petroleum, and brine to migrate to the well.

 

Focus Malaysia vs Icon Offshore

Icon Offshore issued a quite lengthy rebuttal on the Focus Malaysia article, about which I wrote here.

Icon Offshore also issued a letter of demand to the weekly magazine to retract its story, according to The Sun Daily.

The ball is now in Focus Malaysia's court. Tomorrow a new issue of its magazine will be published, will they counter Icon Offshores rebuttal?

Focus Malaysia vs Icon Offshore

Focus Malaysia published a rather negative article about Icon Offshore, a company going for IPO very soon:


"A threat to one’s life, a police report, alleged irregularities and a cover-up all seem the ideal ingredients for an interesting movie script. Only in this case, they are believed to be actual events in the run-up to the listing of Icon Offshore Bhd, an Ekuiti Nasional Bhd-controlled (Ekuinas) company. According to sources, the company, which is scheduled to list its shares on June 25, has had to address these issues in recent months. Its prospectus was launched on May 30.While these issues are not expected to derail or delay the offshore support vessel OSV) provider’s listing debut, it does raise questions that all was not well in the company and whether these issues have since been addressed. Based on documents obtained by FocusM, a police report was lodged on Jan 15 by a Petronas Carigali Sdn Bhd senior official over threats to his life following his alleged discovery of several irregularities in Icon Offshore."


Icon Offshore announced today:

We have to wait how this story will evolve.

Regarding the IPO, I don't have much of an opinion, it looks rather pricey to me both versus the historic PE and its NTA. The "hot" story of Oil & Gas (and PETRONAS' future plans) seems to me to be overdone. All industry players keep on increasing their fleet (Bumi Armada just announced a huge rights issue), surely that can't go on for ever, and at one day might lead to increased competition and margin depression. The numbers from POSH (in the same industry as Icon Offshore) showed that its utilisation rates are dropping, that seems quite worrisome to me for the whole industry.