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In this briefing:
- China Three Gorges’ Rebuttable Presumption
- Yinson Tenders a Lifeboat for Ezion
- Weekly Oil Views: Crude’s Cursory Nod to US-China Deal Optimism Is Par for the Course
- China Power New Energy To Be Delisted After SOE Injection Abandoned
- New J Hutton – Exploration Report (Weeks Ending 22/03/19)
1. China Three Gorges’ Rebuttable Presumption
In my initial insight on China Power New Energy Development Co (735 HK, “CPNED”)‘s privatisation by China Power New Energy Limited (the Offeror) by way of a Scheme, I concluded China Three Gorges, CPNED’s largest shareholder with 27.10%, will likely be required to abstain at the Court Meeting as it is presumed to be a connected party to the Offeror as per the Takeovers Code.
But the announcement states that CTG has given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.
It seems illogical to mention in the irrevocable CTG will vote for the Scheme when in actuality it cannot vote. So, which one is it?
The short answer is: CTG cannot currently vote.
But understanding this requires diving into the minutiae of Hong Kong’s Takeovers Code. So I do.
2. Yinson Tenders a Lifeboat for Ezion
Long-suffering lifeboat market play Ezion Holdings (EZI SP) has received a bail-out from Malaysia’s Yinson Holdings (YNS MK).
Yinson’s proposal is two-fold:
- A conditional debt conversion agreement to capitalise all of the “relevant debt” of US$916mn via the allotment and issue of up to approximately 22,573,570,909 new ordinary shares of Ezion at an issue price of S$0.055/share (27.9% premium to last close).
- A conditional option agreement for the proposed grant by Ezion of 3,360,495,867 non-listed and transferable share options to Yinson at the exercise price of S$0.0605 per option Share.
This shareholder structure will take the following shape, with Yinson holding 85.9% of shares out after the conversion and 87.5% after both the conversion and the exercise of the share options.
Current | After | After Conversion | ||||
Current shares out | 3,728 | 100% | 3,728 | 14% | 3,728 | 13% |
Debt conversion | 0% | 22,574 | 86% | 22,574 | 76% | |
Option shares | 0% | 0% | 3,360 | 11% | ||
Total shares (mn) | 3,728 | 26,302 | 29,662 |
However … as per the more detailed Bursa announcement:
It is the intention of YEPL (wholly-owned sub of Yinson) to acquire up to US$916mn of the Relevant Debts for a consideration to be agreed with the Designated Lenders. Tentatively, YHB (Yinson) expected its cash outlay shall be in the region of USD200mn and some EHL (Ezion) Shares that will give YEPL a shareholding of not less than 70% in EHL at the point of the completion of the Proposed Debt conversion and Subscription. In any event, assuming all convertible securities of EHL are converted, YHB expects its eventual shareholding in EHL shall be a controlling stake of at least 51%.
Ezion is also in negotiation with the major secured lenders to restructure its existing debts which would result in the conversion of certain debts to redeemable convertible preferences shares to be issued by Ezion.
As this is effectively a hybrid takeover, there exist a number of conditions required to complete this proposal. Of importance is the waiver from the Securities Industry Council of Singapore for Yinson not to make a mandatory general offer for Ezion under Rule 14.1 of the Takeover Code, as the share subscription takes Yinson’s stake >30%.
Conditions of the Debt Conversion/Proposed Subscription and Share Options | |
For the Debt Conversion & Subscription | |
Conditions | Satisfactory due diligence by Yinson. |
Waiver from SIC not to make a MGO. | |
Independent shareholders of Ezion approving the whitewash waiver. Simple majority vote. | |
The approval by Ezion shareholders for the allotment and issue of the subscription shares. Simple majority vote. | |
Other | The long stop date is 6 months from the conditional debt conversion agreement (31 March 2019). |
For the Share Options | |
Conditions | The approval by Ezion shareholders for the option shares. Simple majority vote. |
Other | The long stop date is 6 months from the conditional option agreement (31 March 2019). |
The exercise period is five years from the issuance of the options. | |
Gross proceeds will be S$203mn assuming full exercise. To be applied to business expansion or new business opportunities | |
Inter-conditionality | The grant of options is conditional upon and shall take place simultaneously with the debt conversion and subscription |
On Ezion
Ezion develops, owns, and charters offshore assets to support offshore energy markets, via three key segments:
- Lifeboats/liftboats – these are self-propelled rigs involved in the production and maintenance of the O&G and windfarm industry. This segment accounted for 57.9% of revenue in FY18.
- Jack-up rigs – engaged in non-self propelled rigs involved in the production and maintenance of the O&G and windfarm industry. The segment accounted for 34.1% of revenue in FY18.
- And offshore support logistic services, accounting for 7.5% of revenue in FYT18.
Ezion is primarily Asian focused with revenue split between Singapore, India, and the rest of Asia as to 8%, 5.3% and 54%. The Middle East and Africa account for 15.6% and 15.2% respectively.
Fundamentals
US$mn | FY16 | FY17 | FY18 |
Revenues | |||
Liftboats | 127 | 96 | 69 |
Jack-Up Rigs | 158 | 76 | 41 |
Offshore Support Logistic Services | 33 | 20 | 9 |
Others | 1 | 1 | 1 |
Total Revenue | 318 | 193 | 119 |
EBITDA | |||
Liftboats | 77 | 68 | 21 |
Jack-Up Rigs | 112 | 60 | 16 |
Offshore Support Logistic Services | 22 | 16 | (1) |
Others | 1 | 1 | 1 |
Total EBITDA | 212 | 144 | 37 |
NPBT | |||
Liftboats | 62 | (16) | (54) |
Jack-Up Rigs | (54) | (745) | (297) |
Offshore Support Logistic Services | (13) | (156) | (53) |
Others | 1 | 1 | 7 |
Unallocated Expenses | (24) | (82) | 94 |
Total NPBT | (29) | (999) | (303) |
Assets | |||
Liftboats | 811 | 772 | 807 |
Jack-Up Rigs | 1,382 | 556 | 226 |
Offshore Support Logistic Services | 415 | 315 | 119 |
Others | 79 | 81 | 32 |
Unallocated Assets | 165 | 70 | 108 |
Total assets | 2,851 | 1,794 | 1,291 |
Total equity | 1,315 | 305 | (255) |
Net debt | 1,282 | 1,358 | 1,358 |
- Revenue declined by US$125mn in FY17 due to a reduction in charter rates and delays in re-deployment of the Ezion’s liftboats due to working capital constraints. The loss before tax was exacerbated by impairment losses totalling US$897mn.
- Revenue declined by US$74mn in FY17 due to a drop in the utilisation rates of liftboats and jack-up rigs. FY18 also saw an increase in impairments loses of US$84.5mn, while loses in associate and jointly controlled entities increased to US$39mn in FY18 from US$16mn in FY17.
Effect on NTA from the conversion/options
Assuming the subscription and options were completed on 31 December 2018, the effects of the Ezion’s NTL/NTA per share would be as follows:
Before subscription | After subscription | |
(NTL)/NTA (US$mn) | (254.7) | 811.2 |
(NTL)/NTA per share (US$) | (0.0687) | 0.0274 |
Peer Comparisons
Trading Comps | Mkt Cap (SGDm) | PER | PBV | EV/EBITDA |
Yinson Holdings Berhad | 1,647 | 21.7x | 1.5x | 9.1x |
ASL Marine Holdings Ltd. | 33 | NM | 0.1x | 15.3x |
Dyna-Mac Holdings Limited | 105 | 69.6x | 1.0x | 10.5x |
Mermaid Maritime Public Company | 113 | NM | 0.3x | -10.3x |
Nam Cheong Limited | 57 | 0.1x | NM | 11.1x |
China Oilfield Services Limited | 7,230 | 1067.0x | 1.0x | 11.2x |
Aban Offshore Limited | 67 | NM | 17.7x | 27.2x |
Max | 7,230 | 1067.0x | 17.7x | 27.2x |
Median | 105 | 45.7x | 1.0x | 11.1x |
Min | 33 | 0.1x | 0.1x | -10.3x |
Mean | 1,322 | 289.6x | 3.6x | 10.6x |
Ezion Holdings Limited | Market Cap (SGDm) | PER | PBV | EV/EBITDA |
Current Price SGD 0.04 | 160 | NM | NM | -5.8x |
Substantial Shareholders of Ezion
Shares (mn) | % | |
Chan Fooi Peng | 184.7 | 5.0 |
Chew Thiam Peng (CEO) | 190.3 | 5.1 |
3. Weekly Oil Views: Crude’s Cursory Nod to US-China Deal Optimism Is Par for the Course
After a lacklustre week of range-bound trading, crude ended higher on Friday, though well off its session highs.
Crude was buoyed by strong investor cheer, which prompted an across-the-globe rally in the stock markets. The burst of euphoria was prompted by promising signs from the just-concluded high-level trade negotiations between the US and China in Beijing, though arguably throwing caution to the winds.
The American president fired his second tweet of the year at OPEC on Thursday. It was “very important that OPEC increase the flow of oil,” he said, because the price of oil was “getting too high.” The producers as well as market participants decided not to heed this time.
However, the pressure from Donald Trump is bound to intensify if Brent sustains a rally above $70, and OPEC and its Saudi leadership will not be able to continue ignoring it.
Aramco agreeing with the Public Investment Fund to buy 70% of petrochemicals giant Saudi Basic Industries Corp (SABIC AB) for $69.1 billion marks a new era for the companies. However, it does not mean that the Aramco IPO would be shelved, and directly or indirectly, we don’t expect it to derail Saudi Arabia’s strategy of actively managing oil supply through OPEC.
Our chart of the week shows that speculative bets on a price rally continue to return to Brent and WTI futures, but cautiously.
4. China Power New Energy To Be Delisted After SOE Injection Abandoned
SOE State Power Investment Corporation (SPIC) is seeking to privatise China Power New Energy Development Co (735 HK) by way of a Scheme at $5.45/share, a 41.9% premium to last close and a 78.1% premium to the 30-day average.
A scrip alternative (6 New shares for one Scheme shares) into an unlisted vehicle under SPIC is also available.
China Three Gorges, CPNED’s largest shareholder with 27.10%, have given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.
However, China Three Gorges is presumably required to abstain from voting at the court meeting, as it is deemed to be acting in concert with the SPIC under class (1) of the definition of the acting in concert in the Takeovers Code. The announcement does not make this clear.
Assuming China Three Gorges does abstain, a 10% blocking stake at the court meeting is equivalent to 4.48% of shares out or 53mn shares.
This looks like a pretty clean deal. It is priced above the highest close since its listing by way of introduction on the 18 July 2017, while the excitement over the potential injection of all nuclear power assets and businesses from State Nuclear Power Technology Company has been removed after the restructuring was cancelled in July last year.
The stock is currently trading at an attractive gross/annualised spread of 8.3%/28.9% conservatively assuming a late July completion, and inclusive of the final dividend.
5. New J Hutton – Exploration Report (Weeks Ending 22/03/19)
- Uranium Price has fallen 7% over the past two months
- Actively looking for uranium short positions
- Provide summarised watch list
- Wisdom from Samuel Longhorne Clemens
- Yellow Cake PLC (YCA LN), Berkeley Energy (BKY AU), Cameco Corp (CCO CN), Kazatomprom Natsionalnaya At (KZAP KZ), Jangada Mines PLC (JAN LN), Europa Metals Ltd (EUZ LN), Buxton Resources (BUX AU), Musgrave Minerals (MGV AU), Myanmar Metals (MYL AU), Archer Exploration (AXE AU), Canyon Resources (CAY AU), Catalyst Metals (CYL AU), Core Exploration (CXO AU), Exore Resources (ASX: ERX), Stavely Minerals (SVY AU), Tietto Minerals Ltd (TIE AU), Horizonte Minerals PLC (HZM LN), Bellevue Gold (ASX: BGL), Allegiance Coal (AHQ AU), First Au (ASX: FAU), Base Resources (BSE AU), Breaker Resources Nl (BRB AU)
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