Perisai Petroleum facing delisting

This article first appeared in The Edge Financial Daily, on January 15, 2019.
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KUALA LUMPUR: The crash in crude oil prices in 2014 looks set to claim its first publicly listed victim, with Perisai Petroleum Teknologi Bhd headed for removal from Bursa Malaysia on Feb 13.

The former market darling last Friday failed to secure Bursa Securities’ approval for its regularisation plan and has received a notice from the regulator of its trading suspension starting Jan 22.

There is still hope for the company, in financial distress since October 2016, to appeal against the decision. It has until Feb 10 to do so.

However, investors are not taking their chances. Perisai shares lost 2.5 sen or 83.33% to half a sen yesterday after the news. It was the most active counter yesterday with 150.63 million shares traded.

Perisai’s share price has fallen almost 100% since its peak of RM1.72 on Jan 13, 2014, losing about RM2.16 billion in market value.

 

Perisai’s journey as a listed entity

Perisai was listed on the Mesdaq market of Bursa (now ACE Market) on July 5, 2004. It was then known as Perisai Petroleum Bhd.

In a few years, managing director Nagendran Nadarajah grew Perisai from a predominantly corrosion control company to include pipeline and underwater services, concurrent with Singapore-based Mercury Pacific Pte Ltd’s entry as a substantial shareholder.

In 2009, Nagendran was succeeded by former SapuraCrest Petroleum Bhd chief executive officer Datuk Zainol Izzet. It also welcomed Singapore-listed oilfield services group Ezra Holdings Ltd as a new substantial shareholder.

Under Zainol’s stewardship, Perisai acquired a 51% stake in an offshore support vessels (OSV) company. Zainol also steered Perisai towards offshore production, with a mobile offshore production unit and later a floating production storage offloading vessel.

With that, Perisai rode the oil boom to new heights. Its share price reached an all-time high of RM1.72 on Jan 13, 2014 after the highly profitable 2012 and 2013 when oil price hovered above US$100 per barrel.

However, no thanks to the oil bust in 2014 when prices plummeted to below US$60 per barrel in December as robust global production exceeded demand, things have gone downhill for Perisai. This was just when it was about to reap the fruits of a rapid expansion into the capital-intensive offshore drilling business.

The company had hoped the offshore drilling business could be supported by its OSV business, which later also suffered a massive oversupply.

As oil majors slammed the brakes on exploration activities and renegotiated existing projects, job prospects and cash flow dwindled, leaving Perisai with huge debts.

The company triggered the Practice Note 17 (PN17) status in October 2016 after its wholly-owned subsidiary Perisai Capital (L) Inc defaulted in principal and interest payment for a S$125 million bond.

In 2017, its 22.32%-shareholder Ezra filed for bankruptcy — itself another victim of the longer-than-expected downturn. Bursa’s decision to reject Perisai’s regularisation plan last week appeared to be the final straw.

 

Next casualties?

The factors dragging asset-heavy Perisai are its high gearing, high impairments and low job prospects.

There are other oil and gas (O&G) companies on Bursa facing the same dilemma, with one thing going for them — strong shareholders’ backing operationally or financially — with the latter crucial for last-stop measures such as cash calls.

However, the scenario remains bleak for O&G firms considering the lack of, or rather a slow improvement in the operating environment, an analyst told The Edge Financial Daily. “Any improvement in work activities has not trickled down sector-wide,” he said.

“Look at how investors are valuing companies such as Bumi Armada Bhd, which itself has prominent backing,” said the analyst, referring to the debt-laden company’s 34.89%-shareholder Objektif Bersatu Sdn Bhd, controlled by low-profile tycoon T Ananda Krishnan.

Other O&G companies with the PN17 status include Daya Materials Bhd, fabricator TH Heavy Engineering Bhd (THHE) and Sumatec Resources Bhd. O&G chemicals and technical services company Daya Materials has been bleeding for five years. A regularisation plan is due at end-February.

THHE owns a fabrication yard in Pulau Indah, Selangor blacklisted by Malaysia’s sole upstream O&G regulator Petroliam Nasional Bhd. Last year, THHE obtained yet another deadline extension to April 25 this year to submit its regularisation plan.

Sumatec, meanwhile, is banking on its exploration and production in offshore Kazakhstan to keep it afloat. A US$120 million plant was also secured last year in the country, although pundits are sceptical about the execution risk and profitability. It has until end-April to submit its regularisation plan.