By Ranjit Singh
THE proposal by Tan Sri AK Nathan, group managing director of Eversendai Corp Bhd, to inject his 100% privately held Vahana Offshore (M) Bhd into the company has raised some concerns.
One of the main concerns is whether the minority shareholders of Eversendai will be getting a fair deal as this is a related party transaction between Nathan and Eversendai. Another bone of contention is the value of the Redeemable Convertible Preference Shares (RCPS) to be issued to conclude the deal.
Nathan points out in a media briefing that Vahana Offshore will be able to provide stable recurring income to Eversendai but based on the latest available filings on the Companies Commission of Malaysia, Vahana Offshore posted a net loss of RM89,301 on the back of RM204,000 revenue in the financial year ended Dec 31, 2015.
On Feb 10, Eversendai said it has received a letter of offer from Vahana Holdings Bhd for the proposed merger exercise.
Vahana Offshore owns Aryan-Inspire Pte Ltd, Arjun-Inspire Pte Ltd and Vahana Marine Solutions DMCC.
The indicative purchase price will be finalised following negotiations between the parties subject to the completion of due diligence.
Nathan says the transaction will be done via the issuance of RCPS to be converted at a later date. The merger is expected to be completed in 30 days.
Lack of info on value of RCPS
The Minority Shareholders Watch Group (MSWG) CEO Devaneson Evanson tells FocusM that it would be difficult to assess the impact of the deal on minorities as there was a lack of information on the value of the RCPS and the potential income of Vahana Offshore from its future projects.
“However, one thing to note is that if the promoter (Nathan) is so confident of the future business of Vahana, he would have opted for ordinary shares instead of the RCPS issue,” he says.
RCPS gives the owners preference on dividend payments over holders or ordinary shares. They can be converted to ordinary shares at a future date.
Nathan currently owns around 71% of Eversendai. One of the reasons the deal was proposed was to enable Eversendai to diversify its existing business to avail itself of stable recurring income.
Vahana Offshore is principally involved in owning and operating a liftboat business which is also known as a self-propelled jack-up barge. The liftboat is used for maintenance, workover, well service activities, hook-up, commissioning and decommissioning of offshore platforms in the oil and gas industry. It is the first and only Malaysian company to do this business.
Liftboat contracts
Vahana Offshore states that the deal would allow Eversendai to benefit from the liftboat business which has secured long-term contracts with Saudi Aramco.
Vahana Offshore currently owns a liftboat known as Vahana Aryan which was constructed at a cost of around US$100 mil. It is currently constructing another liftboat known as Vahana Arjun which is expected to be completed by 2021.
The due diligence exercise on the deal would take around one month. It has to obtain the approval of shareholders before the deal sees a closure.
The deal should be carefully scrutinised to ensure that minority shareholders will not lose out.
Since the announcement of the proposal, Eversendai has obtained a few projects that have had a positive impact on its share price.On Feb 17, it announced that its subsidiary in India had secured RM330 mil worth of projects. Incorporating these new contracts would bring its total contract wins to RM653 mil to-date for the year 2020 and increase its order book to some RM2.2 bil.
The project was for the development of an IT Park in Tharamani, Chennai by DLF Info Park Developers (Chennai) Ltd. In a statement to Bursa Malaysia, the company said the project win was a major achievement for Eversendai and would further accelerate its growth momentum.
The project win would also improve the company’s chances to secure additional phases of future development in the same project.
The DLF Downtown IT Park project consists of two towers of a commercial building constructed using composite structures in fast-track mode and is expected to be completed in a record time of 16 months.
Introducing innovation to India construction industry
Eversendai said the project will set a new benchmark in the Indian construction industry. For the record, this is the second job awarded by DLF to Eversendai. The first is for a 1.6 million sq ft commercial building project in Chennai which is nearing completion.
Eversendai has delivered projects for developers and clients in India for the last 10 years.
The company has introduced to India innovative construction methodologies such as composite structures for timely project completion. India continues to be one of the world’s fastest-growing economies.
Poorer 9MFY19 results
For the nine months ended Sept 30, 2019, Eversendai’s net profit fell to RM20.9 mil from RM50.5 mil a year ago while revenue eased to RM1.19 bil from RM1.21 bil.
Its lower revenue was due to its mechanical fabrication, installation & modularisation segment which saw revenue slide by 88.5% and losses incurred due to very low utilisation of the Ras Al Khaimah fabrication yard facility caused by the delay in the timing of new project awards by external parties.
This resulted in the segment recording a loss before tax of RM32.4 mil for the period under review. The group’s core business which is the structural steelworks segment had performed better, registering a revenue of RM1.16 bil which is 18.8% higher than for the same period of the preceding year.
The Middle East continued to contribute the largest share of the group’s structural steel works revenue at RM719.0 mil, or 61.7%, and profit before tax of RM39.7 mil in the current financial period due to the higher construction progress achieved for existing projects and commencement of the construction for new projects secured in FY19.
The operations in Southeast Asia contributed RM283.7 mil, or 24.3%, to the group’s structural steelworks revenue and profit before tax stood at RM24.4 mil for the nine-month period, mainly due to the commencement of the construction for a new project in Singapore in FY19 and higher construction progress achieved for the existing projects in Malaysia.
Revenue contributed by its India operations was RM162.3 mil, or 13.9% of the group’s structural steelworks revenue and profit before tax stood at RM8.7 mil largely due to the higher construction progress of existing projects and commencement of construction for new projects secured in FY19.
Its operations in the United Kingdom and others registered a loss before tax of RM14.6 mil mainly due to finance costs for the nine-month period.
TA Research has a sell call on the stock with a target price of 25 sen. Among other things, the research firm was concerned with the high gearing of the company of around 1.5x and its failure to meet some of its debt covenants. – March 3, 2020
