Any Icon Offshore cash call will be looked at like new investment

This article first appeared in The Edge Malaysia Weekly, on April 9, 2018 - April 15, 2018.
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LIKE many oil and gas companies, offshore support vessel (OSV) provider Icon Offshore Bhd has sailed through choppy waters in recent years amid a low crude oil price environment.

Last Thursday, its share price closed at 19.5 sen — a fraction of its initial public offering (IPO) price of RM1.85. Icon Offshore was listed on June 25, 2014, and raised RM945 million. Based on its share capital of 1.17 billion, some RM3.24 billion of its market capitalisation has been wiped out in the last three years.

The company’s financial performance has suffered too. It has been in the red for three consecutive years, although its losses narrowed to RM59.79 million in its financial year ended Dec 31, 2017 (FY2017), on revenue of RM204.63 million.

For the company’s single largest shareholder Ekuiti Nasional Bhd (Ekuinas), the tapering losses are a signal that the cost-optimisation measures undertaken are bearing fruit.

“While the overall oil and gas market has not improved, a lot of things have been done to ensure that Icon Offshore is operating at optimum cost,” says Ekuinas CEO Syed Yasir Arafat Syed Abd Kadir.

That said, Icon’s balance sheet seems strained. In FY2017, it saw negative operating cash flow of RM83.23 million compared with repaid borrowings plus interest of RM124.16 million in total.

As at Dec 31, 2017, its current assets stood at RM143.46 million, of which RM48.07 million was cash.

By comparison, short-term borrowings — due within a year or so — amounted to RM334.63 million while longer-term liabilities stood at RM350.1 million.

The signs point to a possible cash call at some point to give Icon Offshore some breathing space, considering that its planned merger with UMW Oil & Gas Bhd fell through last year. If there is a cash call, all eyes will be on government-linked private equity firm Ekuinas, which holds a 42.28% stake in Icon Offshore.

When asked about the possibility, Syed Yasir reiterates, “We are supportive. As for any cash call, we would look at it like any new investment and evaluate whether it can generate sufficient return on investment [for Ekuinas].”

The stake in Icon Offshore is a residual interest as a result of the listing. Prior to the IPO, Ekuinas had held 88% equity interest in the company.

The OSV group was created via the merger of Tanjung Kapal Services Sdn Bhd and Omni Petromaritime Sdn Bhd back in November 2012.

It would seem that Ekuinas is stuck with its remaining stake in Icon Offshore, given the current weak performance of its share price. However, Syed Yasir does not appear too concerned. “We remain hopeful that once there is stability and activity picks up, that will improve. It is really a cyclical play from that perspective.”

He highlights that Ekuinas’ overall cost of investment up to the listing of Icon Offshore was about RM480 million, but he would not disclose the firm’s holding price for the latter’s shares at present.

According to Ekuinas’ 2014 annual report, the listing generated total gross proceeds of RM545.4 million and a realised gain of RM336.5 million. This means Ekuinas has more than recouped its investment and the rest can be considered additional profit. The question is, when can it crystallise its remaining stake?

At the moment, Ekuinas is focused on exploring strategic opportunities to grow Icon Offshore, says Syed Yasir. “Our preferred mode, when the opportunity arises, is to grow the company and we’re looking for opportunities within the sector itself.”

He does not discount the possibility of further capital investment in Icon Offshore should such opportunities involve mergers and acquisitions. “Do we go more asset-heavy, meaning look at opportunities that carry more assets, or do we diversify into more services? These are the options that we are looking at,” he says.


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