This article first appeared in The Edge Financial Daily on November 22, 2017 - November 28, 2017

KUALA LUMPUR: In a follow-up to a heads of agreement (HoA) between Yinson Holdings Bhd and a Japanese consortium in July this year, the two parties have signed a conditional share purchase agreement (SPA) to establish sale of a 26% stake in Yinson’s African unit for US$117 million (RM484.38 million).

Back in July, Yinson signed the HoA with Sumitomo Corp, Kawasaki Kisen Kaisha Ltd, JGC Corp and the Development Bank of Japan to sell the stake in Yinson Production (West Africa) Pte Ltd, with the shareholding price expected to be between US$104 million and US$117 million.

In a filing with Bursa Malaysia yesterday, Yinson, whose share price hit an all-time high of RM4 recently, said that its wholly-owned unit Yinson Trillium Ltd has inked the SPA for the stake sold to the established consortium, Japan Sankofa Offshore Production Pte Ltd, with the four Japanese firms acting as the purchaser guarantors.

Yinson Production is currently chartering its floating production storage and offloading (FPSO) unit to Eni Ghana Exploration and Production Ltd for a firm charter period of 15 years since beginning of this year, with five yearly extension options by Eni Ghana.

The price took into consideration Yinson Production’s discounted cash flow from the 15-year Ghana FPSO charter, its charter rate, and the company’s capital structure.

“The discount rate is within the range of the cost of equity based on the unlevered beta of companies of similar activities.

“The board is of the view that the discounted cash flow method is a more appropriate valuation method for Yinson Production (West Africa) compared with other methods such as price-to-book and price-earnings multiple, given that the unit, which owns the Ghana FPSO, has a firm long-term contract,” said Yinson.

Proceeds from the stake sale will be used by Yinson for capital expenditure (RM100.21 million), repayment of borrowings (RM208.78 million), working capital and expenses for the exercise.

With the proceeds, the company expects to reduce its net gearing to 0.79 times, from 1.15 times presently.

At the same time, Yinson said it can continue to participate in the prospects of the Ghana FPSO project with its effective 74% stake in the company.

“The strategic partnership with four established and prominent institutions provides a tremendous opportunity to build a long-term relationship with each other, on which the parties may potentially leverage as a consortium to bid for future projects,” it added.