Popiah Radiance apparently?

If this story in The Business Times is true, and I have no reason to believe that it isn’t, then the Pacific Radiance restructuring is not going well.

As a general rule bringing an Ultra-High Net Worth individual in on this deal means the fundraising banks have exhausted all the institutional money they can find to inject some equity in here. The investment banks have been around the fund managers who have had as much fun as they can handle in offshore, and looked at situations like this (disclosure I am an ex-Director of Bukit Timah AS):

Singapore’s Kim Heng Offshore and Marine Holdings Limited has purchased three anchor handling tug supply (AHTS) vessels for USD9.6 million, securing them at a fraction of a previous valuation…

Kim Heng said that the vessels were previously valued at approximately USD33 million each, but it was able to acquire them “at extremely low valuations” due to the downturn in the oil and gas industry…

So now the banks are forced to widen the circle to people who may know nothing about offshore, but have a lot of money and can be sold on the “new” rebound story. Let’s wait and see if this deal actually executes like as outlined. The only attraction for an UHNW investor coming in would be an extreme price discount and unbelievable terms and conditions, and the Pacific Restructuring term sheet doesn’t indicate that?

I mean even the bankers here can’t really believe this plan will work? Surely? They must be in it for the fees and targeting an UHNW who is the client of another bank? You wouldn’t sell this deal to your own clients would you?

There is an excellent article here in OSJ that again just emphasises how bad things are in the offshore support market. Especially in Asia. What could go wrong? Ignoring the fact someone very wealthy, and therefore potentially credibly litigious, is your cornerstone investor when no credible market reports suggest an upturn.

Pacific Radiance’s last accounts show bank debt and loan notes of USD 526m. The term sheet indicates that the secured banks are writing off $100m, getting $100m immediately, and end up with a reprofiled $120m and everyone else (unsecured) gets shares (I am assuming having read it quickly). So quite how much cash in the bank you get from putting in $120m is unclear but it clearly isn’t a massive number.

The gap between the actual transacted values and the book values of offshore support vessels is still just so extreme that if there is a trading problem equity holders are guaranteed to get nothing. At some point simply saying the loans don’t have to be paid back for three years must still be realised as unrealistic. This is the deal from the term sheet:

The remaining re-profiled Bank Loans of approximately US$120 million will be repaid over 3 years from 1 January 2021 to 31 December 2023.

50% of the contractual interest margin payable under the re-profiled Bank Loans shall be deferred for a period of 3 years from 1 January 2018 to 31 December 2020 and the deferred interests shall be paid by 31 December 2023.

So before this new equity would have a claim of value the current Pacific Radiance fleet would have to generate enough cash to pay the banks back $40m per annum starting in 2021? Oh and make good the interest. Really? And if they don’t? The new shareholders will be wiped out in another refinancing or sale? And what sort of upside is the spreadsheet showing? Which is just the situtation SolstadFarstad has arrived at earlier… It’s just not real unless the term sheet isn’t showing some protections on offer to the equity investors.

 

I’ll be interested to see if a canny self-made man really puts money in under those conditions. It smacks of desperation on the capital raising side in that all the institutions, who have the time and resources to undertake due diligence, get that this is simply keeping the banks going here without any industrial solution at all.

All you are getting for that money is a future claim on a declining asset base which you must compete with on price to get utilisation. That is the only deal on the table here and this is not a high quality fleet in terms of residual value. The US supply firms have got real: any claims to these vessels are equity in economic reality if not legal status. Everyone should just convert their claims and then it would be easier, but if they can really find people who go for this then well done. But it is a short-term solution and nothing more. #denial

Watching with interest.

 

4 thoughts on “Popiah Radiance apparently?

  1. Everyone who has a brain knows this – people are tired of reading about the bankrupt Singapore offshore operator. What else, where are the next good deals in offshore?

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  2. Can be quite convincing… if at least half the facts were true. If you have been in SG for a while, you would have understood the critical way some of the families operate and the banking relationships behind them. If Sam Goi is really in, I doubt the banks will want to offend him by over charging fees etc. and risk bigger deals on his real estate or conglomerate empire. But in the first place, are the banks driving the equity raise? Would the founding family with decades of experience behind them need (or even want) industrial players or financial institutions to be their anchor investors and cede control to them? When was the last time you saw a PE owned offshore O&G company do well? Only thing I would agree with you is that we should watch with interest. If the company manages to bring in more good names (not like Sam Goi isn’t enough), I won’t be surprise if we see some good action on the stock when it resumes trading. People like Sam Goi have an extremely strong following and that shouldn’t be underestimated. After restructuring, who’s to say that there won’t be a part 2? I can’t imagine big names like Sam Goi to be going through all the trouble for just a “small” investment…

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