I posted Perisai Asked To Explain In Details Its Purchase Of Garuda Energy.
I left out the document attached to that Bursa announcement!
LOL! My, what on earth was my eyes starring at then? ( Could someone please smack me on the head? LOL! )
Many apologies!
Anyway, attached to that Bursa announcement was Perisai's reply: Perisai-reply to Bursa(310311).doc
PERISAI PETROLEUM TEKNOLOGI BHD ("PERISAI" OR THE "COMPANY") PROPOSED ACQUISITION BY PERISAI OF THE ENTIRE ISSUED AND PAID-UP SHARE CAPITAL OF GARUDA ENERGY (L) INC (“Target Company”) FOR A TOTAL PURCHASE CONSIDERATION OF USD70,000,000 TO BE SATISFIED BY WAY OF CASH AND THE ISSUANCE OF NEW ORDINARY SHARES OF PERISAI ("PROPOSED ACQUISITION")
We refer to our announcement dated 29 March 2011 ("Announcement") and the query letter from Bursa Malaysia Securities Berhad (“Bursa”) dated 30 March 2011 requesting for additional information in relation to the Proposed Acquisition.
A. At the outset we wish to state that we have entered into a Term Sheet which are subject to preconditions stated in our Announcement at paragraph 3.3 which we restate for ease of reference:-
3.3 The Proposed Acquisition is conditional upon satisfactory completion of the following Conditions Precedent:-
(a) Upon the Target Company’s receipt of the first bare boat charter payment from OIL CO, which evidence of receipt shall be furnished to Perisai;
(b) The Target Company securing an external borrowing sufficient to cover the cost of Mobile Offshore Production Unit (“MOPU”) conversion;
(c) MOPU is completed based on OIL CO specifications as contracted with OIL CO and Perisai being satisfied that MOPU has been completed in accordance with the specifications;
(d) Perisai Board of Directors’ and Shareholders’ approvals obtained;
(e) Regulatory approvals (including the listing of the new ordinary shares) being obtained to enable the parties to proceed with the Proposed Acquisition;
(f) Lenders’ approvals (if necessary) being obtained for Perisai to enter into the Proposed Acquisition;
(g) Perisai being satisfied with the results from the due diligence (technical, legal and financial) carried out on the Target Company.
In the event that any of the conditions cannot be satisfied within the stipulated time or the SSA is not executed within 90 days from the date of the Term Sheet (or within any such extended period as may be agreed upon by the parties), this proposal shall lapse and in such event, the Earnest Deposit shall be refunded within 14 days to Perisai together with 8% interest per annum thereon (calculated from the date that this proposal lapses) until the amount is fully settled.
B. On behalf of the Board, we wish to state our response following the numbered paragraphs of Bursa’s letter dated 30 March 2011:-
1) The proposal is transacted in United States Dollar. It is agreed that the number of consideration shares to be issued shall only be determined seven (7) days prior to the submission of draft circular to Bursa Malaysia based on the prevailing exchange rates between Ringgit Malaysia and United States Dollar on that date.
Based on current USD to RM rate of RM3.00 to USD1.00, the number of consideration shares to be issued would be approximately 92,307,692 Perisai shares. We refer to our Announcement which states “the issuance of new ordinary shares of Perisai (“Consideration Shares”) at an issue price of RM0.65 per Consideration Shares for the remaining USD20 million (equivalent to approximately RM60 million).”
2) The breakdown for the source of fund for the Proposed Acquisition is as follows:-
a) USD 50mil (equivalent to approximately RM 150 million) cash consideration is expected to be funded via internally generated funds and/ or external borrowings and/or issuance of new Perisai shares . The actual breakdown has not been finalized at this juncture. We shall notify Bursa Malaysia accordingly once the breakdown is determined.
b) USD20 million (equivalent to approximately RM60 million) balance consideration shall be via issuance of new Perisai shares at RM0.65 per share.
3) The principal business of the Target Company is owning and chartering of offshore assets. The Target Company owns a jack up rig, named Rubicone, which is currently being converted into a mobile offshore production unit (“MOPU”)in Singapore.
4) The date of incorporation was on 3rd December 2009.
5) We are informed by the Vendor the total cost for the MOPU including the conversion cost is expected to be in the region of USD60 million to USD 70 million. The construction risks lies with the Vendor and Perisai is not exposed to any costs overrun.
6) Save as disclosed below, Perisai will not assume any liabilities (including contingent liabilities and guarantees) arising from the Proposed Acquisition, save for those reflected in the balance sheets of the Target Company , which would be consolidated in Perisai Group’s accounts with effect from the Completion Date: The Group may be required to provide corporate guarantee(s) for the bank borrowings to be undertaken by the Target Company
7) The sole director and 100% shareholder of the Target Company is Nagendran C. Nadarajah.
8) Gryphon Energy (M) Sdn Bhd (“GEM”) was awarded the contract this year. We are unable to disclose the exact date of the award due to confidentiality.
9) The expected revenue of USD25 million is based on the bareboat charter to be entered between the Target Company and GEM.
10) The directors of GEM are Dato’ Dr Mohamed Ariffin bin Hj Aton, Nagendran C. Nadarajah and Puan Sharifah Zuraidah Bt Syid Mustafa Alqudri. The shareholders of GEM are Gryphon Energy (Asia Pacific) Sdn Bhd which holds 45% and Puan Sharifah Zuraidah Bt Syid Mustafa Alqudri who holds 55%.
11) The Purchase Consideration was negotiated on a willing buyer, willing seller basis taking into consideration the value of the asset owned by the Target Company and the potential earnings to be generated from the bareboat charter contract to be entered into with GEM, who has secured a 2+1+1 years contract from a major oil company.
12) The justification of the issue price at RM0.65 is based on an average price of Perisai shares at the point of initial negotiations.
13) The asset owned by the Target is a jack up rig which is currently being converted into a MOPU.
14) Based on audited accounts of the Target Company as at 31 December 2010, the Target Company has a Property Plant and Equipment book value of USD12.3 million and Total Assets of USD 13.6 million.
15) The Target Company which owned an old jack-up rig was disposed of to the Vendor in 2010. The rig then was without any contract and furthermore Perisai did not intend to take on any construction risk to rebuild it into a MOPU, hence, Perisai had decided to dispose of the rig in 2010.
The Target Company which Perisai is now buying, will own a MOPU(a facility which is used to process oil or gas in offshore locations) which is expected to have a certified 15-year life span and will be installed with major oil and gas processing equipment.
One of the conditions precedent to the Completion is the receipt of the charter payment from the major oil company. Perisai would only acquire the Target Company if the MOPU is operating and acceptable to the major oil company.
16) The Target Company is currently converting its used rig into MOPU and would be involved in the bareboat chartering business in the oil and gas industry. The Target Company's business prospects are dependent on the prospects of the oil and gas industry in Malaysia as well as the surrounding region.
In view of the positive prospects of the oil and gas industry and the demand for rigs by the oil and gas players, the Board believes that the prospects and future financial performance of the Target Group is expected to be favorable.
The Target Company’s revenue stream will be protected by the bareboat charter arrangement to be entered into with GEM for 2 + 1 + 1 years.
(b) Earning and EPS The Proposed Acquisition is expected to be completed by the third quarter of 2011 and is expected to contribute positively to the earnings and the EPS of Perisai Group for the financial year ending 31 December 2011 and in the future.
(c) Substantial shareholding of Perisai. Please refer to Appendix 1
18) There will be no major operational impact of the Proposed Acquisition on Perisai as GEL would lease the asset to GEM on the bareboat charter basis i.e the operation risk is being transferred to the charterer
19) Dato’ Dr Mohamed Ariffin bin Hj Aton is only a director of Gryphon Energy (M) Sdn Bdh. This transaction is not considered a Related Party Transaction pursuant to Paragraph 10.08 of the Main Market Listing Requirements.
20) Kindly refer to points (15) and (16) above. 21) The highest percentage ratio applicable to the Proposed Acquisition is 87.26%.
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There are several issues.
1. Why didn't Perisai make this detailed announcement in regards to its purchase of Garuda? Why wait until Bursa demand of information? Yes, why was this deal announced to the press on 30th March 2011 and why wasn't this deal announced on Bursa website?
2. The table snapshot shows that Perisai number of shares would expand greatly. Back in Jan, Perisai already announced its Intan Offshore acquisition. ( refer Perisai_Announcement _27 Jan.pdf ) For the purchase of Intan Offshore some 70,683,000 new shares would be issued at a price of rm 0.64 sen. For the purchase of Garuda some 92,307,692 new shares would be issued at a price of rm 0.65 sen.Which means at the end of the day, Perisai shares would balloon from 662,000,000 to 845,791,000 shares.
Not a fair comparison but just imagine that Perisai was trading around 58 sen at the start of the year. With a share base of 662 million, the company was valued at 383.960 million. The stock closed at 82 sen. If Perisai stays at this price, the 'new' Perisai would be be valued at some 693.5 million! (If one is an investor/shareholder, one would be worried with the possible dilution of earnings but then if one is a trader/speculator, one would not even bother! )
3. The Intan purchase. If you open the Jan.pdf file, you would note that..
- The principal activities of Intan Offshore are those of ship owners and provision of ship chartering services. Intan Offshore, together with its subsidiaries (“Intan Offshore Group” or “Group”) own a total of 8 vessels. The vessels are currently chartered as bareboat charters to Emas Offshore and Emas Offshore Pte Ltd (both wholly-owned subsidiaries of Ezra Holdings Limited (“Ezra Holdings”)) which in turn charters the vessels out to end charterers
Now Ezra Holdings the name is familiar.
Back on April 2010.
- Saturday April 10, 2010 MD of Perisai selling 19% stake
PETALING JAYA: Perisai Petroleum Teknologi Bhd managing director Nagendran C. Nadarajah is disposing of his 19% stake in the company to HCM Logistic Ltd, a subsidiary of Singapore-listed Ezra Holdings Ltd. The company told Bursa Malaysia yesterday that the disposal was expected to be completed on or before May 7.
Nagendran sold his stake to HCM to Ezra Holdings. And Perisai is buying Intan Offshore from Ezra Holdings?
Nothing wrong in that.... but.... makes you wonder...
4. And how is Intan Offshore earnings track record? 
5. What does Garuda brings to Perisai? I don't know but all I saw was just this statement.
- The expected revenue of USD25 million is based on the bareboat charter to be entered between the Target Company and GEM.
Expected revenue of just USD25 million. My eyes might fail me but I did not see Perisai state how much earnings Garuda could bring to the company.
Ok, I am aware the following statement from CIMB.
- Annual profit contribution of RM40m. We estimate that Garuda will contribute RM40m p.a. to Perisai’s net profit, with maiden contribution to be booked in 4Q11 after hook-up and commissioning.
CIMB expects annual profit contribution of rm 40 million????
LOL! This is where I am confused.
If it's so good why didn't Perisai state this in its reply to Bursa?
But some would argue that Garuda's earnings is not improtant. The issue is the asset, the MOPU, that Perisai is buying!
6. The justification of the issue price at RM0.65 is based on an average price of Perisai shares at the point of initial negotiations?
Err... so what's the initial negotiation? How was the 65 sen price tag being justified? Can we have more info?
7. ".. the Target Company as at 31 December 2010, the Target Company has a Property Plant and Equipment book value of USD12.3 million and Total Assets of USD 13.6 million"
Err... the target company only has a property, plant and equipment book value of just USD12.3 million and total Assets of USD13.6 million?
So how is the USD 70 million purchase price being justified? Why must Perisai buy Garuda? No other alternative?
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