This article first appeared in The Edge Malaysia Weekly on April 1, 2024 - April 7, 2024

A barrage of questions has arisen after the Lim family, led by patriarch Lim Han Weng — who controls oil and gas floating production storage and offloading player Yinson Bhd — acquired a controlling 50.2% stake in Icon Offshore Bhd, an offshore support vessel (OSV) provider for the O&G sector last week.

The block in Icon Offshore was hived off by Ekuiti Nasional Bhd (Ekuinas) — a state-owned private equity (PE) firm set up to promote equitable and sustainable bumiputera wealth creation and economic participation — to the Lim family vehicle, Singapore trading and logistics firm Liannex Corporation (S) Pte Ltd for RM172.2 million, or 63.5 sen per share in cash, and triggered a mandatory general offer (MGO).

It is worth noting that on March 26, when the offer was made, Icon Offshore ended trading at 73 sen — a 14.9% premium to the offer price. Since then Icon Offshore’s stock has surged to close at 78.5 sen last Friday — which means the MGO is unlikely to gain traction.

On the one hand, many O&G players are looking at the 63.5 sen, or RM172.2 million, the Lim family paid for the 50.2% block in Icon Offshore and say the going price is cheap.

For comparison, Kenanga Investment Bank, which initiated coverage on Icon Offshore on March 13, pegged a target price of 80 sen with an “outperform” call on the OSV operator. Maybank Investment Bank, meanwhile, in a report after the MGO by the Lim family has a target price of 71 sen for Icon Offshore and a “hold” call.

Also in the spotlight is the sale of the stake when the OSV sector seems to be gaining traction.

In email responses, an Ekuinas spokesperson says, “Icon Offshore’s share price has on average hovered around 51 sen for the past 12 months and occasional spikes have been largely event-driven such as announcements on dividends.”

On the timing of the sale, on the cusp of a boom in the OSV industry, the spokesperson says, “Ekuinas is a PE equity (firm) and not a strategic investor … Therefore, all assets that we own need to be divested within a certain timeframe. Our holding period is typically between five and seven years. In this regard, Icon Offshore’s divestment is long overdue as we have held it for over 10 years.

“Ekuinas owns a significant 56.8% stake in Icon Offshore (prior to the divestment to the Lims). Market disposal is not a feasible option due to the low average trading volume. While the overall O&G sector has recovered, it remains challenging due to the unpredictable cycle and heavy capex (capital expenditure) requirements.

“This is further exacerbated by a lack of funding available in this sector due to the ESG (environment, social, and governance) practices. The best time to sell is indeed when the industry is recovering, and the outlook remains positive rather than during a decline with negative outlook.

“Also, it needs to be noted that despite the industry picking up, there are only a limited number of willing and able buyers in the Malaysian O&G sector who have the financial capability to acquire this asset, and have the strategic interest to integrate Icon into its overall business. We believe that the sale of Icon Offshore to a reputable and capable Malaysian owner will augur well for the future growth of the company.”

Petroliam Nasional Bhd’s (Petronas) activity outlook for 2024 to 2026 indicates little change in the national oil company’s requirements. In 2023, as many as 144 vessels — a mix of anchor handling tugs, work boats and fast crew boats among others — were needed, rising to an expected 148 in 2024, 146 in 2025 and 142 in 2026.

As at end-December last year, Icon Offshore’s net asset per share was 64 sen. For the year ended December 2023 (FY2023), the company chalked up a net profit of RM4.86 million on the back of RM199.79 million in revenue. In FY2022, it registered a net profit of RM168.92 million from RM283.48 million in revenue. Note however, that in FY2022, it sold its rig Perisai Pacific 101 for US$85 million (RM381.65 million then) and made a gain of RM185.5 million.

Icon Offshore, as at end-2023, had net debt of RM101.4 million and accumulated losses of RM16.06 million.

Late last year, Icon Offshore undertook a five-to-one share consolidation reducing its share base from 2.71 billion shares to 541.31 million shares and a capital reduction and cancellation of its issued share capital to RM830 million to address its accumulated losses of RM823.84 million, as at end-2022.

The Ekuinas spokesperson says, “We have been in negotiations with multiple parties for the sale of our stake in Icon Offshore, including local groups, since 2016. Unfortunately, they all fell short of our expectations. In this regard, as a government-owned PE firm, we have a fiduciary duty to maximise our investment returns while also ensuring that any exit for our investments will be in favour of an acquirer that can take the business further on to its next phase of growth.”

The spokesperson adds that after the sale of the jack-up rig, Icon Offshore’s business is now relatively sub-scale. “It now needs new ventures, and new investments to drive further growth. Funding for new asset acquisitions is challenging, given the lack of appetite among most Malaysian banks for the oil and gas sector and injection of capital is not an option, given we have held the Icon Offshore (stake)for more than 10 years.”

In its press release, Ekuinas says it recorded cumulative gains of RM500 million throughout its more than 10-year holding period of Icon Offshore. This raised eyebrows as the company bled losses in five out of 10 financial years since its 2014 listing.

Explaining the gains, the Ekuinas spokesperson says, “Ekuinas has recorded cumulative gains of over RM500 million throughout its more than 10-year holding period for Icon Offshore. This was mainly derived from the IPO (initial public offering), dividends and disposal.”

Icon Offshore paid out dividends twice: a five sen interim dividend in November 2023 and a 6.7 sen special dividend in December 2022, or a total of RM208.22 million.

From its annual report in FY2014, Ekuinas noted that Icon Offshore’s debut on the Main Market marked its first successful listing of its portfolio company. “Ekuinas generated total gross proceeds of RM545.4 million from this exercise.”

Interestingly, with Liannex acquiring the block from Ekuinas, will Icon Offshore still be able to bag contracts meant for Malaysian companies, and piggy back on the O&G associations representing the sector?

Malaysian OSV Owners Association (Mosva) president Jamalludin Obeng says it is still too early to make an assessment on Icon Offshore’s Mosva membership.

“However, the definition of Malaysian OSV owner operators companies is such that the real controlling shareholder must a Malaysian registered entity,” he says.

In its report initiating coverage, Kenanga says, “Icon Offshore’s earnings are set to rise, as 11 of its 18 operating OSVs, currently under the (Petronas Integrated Logistics Control Tower) ILCT contract expiring in 1HFY2024, are likely to be renewed at higher spot market rates. This positions Icon Offshore to fully capitalise on the daily charter rates (DCR) uptrend post-contract renewal.”

Maybank says, “We think the emergence of Liannex as a major shareholder would be a mid- to long-term positive as there may be new strategies/innovations to grow Icon Offshore as an entity. However, we highlight that there are no immediate changes in Icon Offshore’s fundamentals, until more details are shared. The group needs to win jobs from Petronas’ POV (production operations vessels) programme (a new programme after the ILCT programme lapses) to enjoy the long-term hike in DCR over the next few years for 11 of its OSVs.”

A source close to Icon Offshore says the company being controlled by a Singaporean firm makes it similar to shipbuilder Nam Cheong Ltd, which is publicly traded in the island republic but has a Malaysian controlling shareholder Tan Sri Tiong Su Kuok who has some 33% in the company. Nam Cheong is known to have bagged Petronas contracts in the past.

An O&G source, however, says Nam Cheong started chartering vessels in the downturn, around 2018, when many orders to build OSVs were cancelled by purchasers as they could no longer pay for the assets. Furthermore, Nam Cheong only managed to secure short-term charter contracts — what is known in Petronas parlance as a Tier 2 company, Tier 1 being companies eligible for long-term charter jobs.

To recap, Brent Crude traded at US$145 per barrel in mid-July 2008, but tumbled to US$26 in February 2016, and despite a number of short-lived rallies, hit a low of US$20 in April 2020.

The Edge understands that another oil and gas outfit, with a foreign company holding its shares but Malaysian owned, had sought to register its vessels here as the ultimate owner is Malaysian, but for whatever reason, the plans fell through, because of resistance from other industry players.

Among the local players, Perdana Petroleum Bhd, Alam Maritim Resources Bhd, EA Technique (M) Bhd and soon-to-be-listed Keyfield International Bhd may benefit if Icon Offshore is sidelined from local contracts. 

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