More hurdles for Tanjung Offshore

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WHILST picking up the pieces after a planned reverse takeover with Bourbon SA fell through in December 2014, Tanjung Offshore Bhd has had to tackle new challenges with the suspension of three of its officials.

In an interview with The Edge last month, group adviser and former managing director Datuk Harzani Azmi said the company was actively seeking a new core business despite the slump in global oil prices. However, recent developments could throw a spanner in the works as allegations against some of its officials might put off potential partners.

The officials — Tan Sri Tan Kean Soon, Muhammad Sabri Ab Ghani and Harzani — have been suspended from their executive and adviser roles for possible breach of fiduciary duty, among other things. They are now awaiting further action to be determined by an independent committee heading the review.

Market observers say the investigation may jeopardise Tanjung Offshore’s (fundamental: 1.95; valuation: 2.4) opportunity to acquire attractively priced assets in the current low oil price environment. The company has been without a core business since it sold 16 offshore support vessels to Ekuiti Nasional Bhd in 2012.

Harzani had said that the time was right to cherry-pick as the price of crude oil had fallen — by more than 60% since August 2014 to below US$45 per barrel last week.

“Any potential JV partners we are talking to now, when they hear of these allegations, whether or not they are founded, obviously will have concerns. So, we need to get this behind us quickly because the opportunities out there will not last forever,” a Tanjung Offshore spokesperson tells The Edge following the company’s announcement of the suspension of the three officials to Bursa Malaysia last week.

Tanjung Offshore is in a healthy net cash and asset position with zero gearing. As at Sept 30, 2014, its cash balance stood at RM35.96 million compared with RM26.6 million a year ago. Although it has no borrowings, short-term payables amounted to RM31.45 million.

“We also have contracts in hand worth about RM500 million going forward, giving us 2 to 2½ years’ visibility,” says the spokesperson.

“The suspension and further investigation will give the three officials the opportunity to clear their names and set the record straight before further action is taken.”

Tanjung Offshore’s officials are now in a quandary about who is running the company as the majority of the board of directors are involved in the investigation or have been suspended.

Tan-Harzani-Sabri_20_1052The company has six directors in total: Tan (non-independent director), Sabri (executive director), Eric Tan Wee Koh (executive director), George William Warren Jr (independent non-executive director), Datuk Ab Wahab Ibrahim (non-executive director) and Shahrizal Hisham Abdul Halim (independent non-executive director).

Note that while awaiting further action, the suspended three do not have the authority to speak on behalf of the company. Meanwhile, the independent committee — comprising Warren Jr, Ab Wahab and Shahrizal and established on Jan 8 to conduct an internal review — feels it is not appropriate for it to do so at this juncture.

According to the company’s announcement to Bursa, the independent committee will investigate an array of issues arising from media reports, including the purchase of a 49% stake in Gas Generators (M) Sdn Bhd (Gastec), unauthorised and misleading information leaks to the media and the Bourbon deal.

To recap, Bourbon had intended to inject its marine assets into Tanjung in a reverse takeover.

The independent committee said it found no faults or improprieties in several matters, namely the Gastec buy and acquisition of a property in the UK for £6.7 million (RM36.7 million). However, its findings included the possibility of conflict of interest and breach of fiduciary duty involving Tan and Sabri.

“Bourbon had informed that the two directors of Tanjung had approached Bourbon for a vessel contract in Malaysia during the period of heads of agreement for a personal company linked to the non-independent non-executive director of Tanjung,” it said in its announcement to Bursa.

Meanwhile, in a construction work request closure project in China, the independent committee found elements of collusion/collaboration in ongoing negotiations with a potential subcontractor that could have resulted in a serious inflation of costs for Tanjung.

Harzani’s name was dragged into the mix when the independent committee found “deficiencies in process” in Tanjung Offshore’s Philippine operation.

The company’s largest shareholder is Lembaga Tabung Haji with a 8.26% stake, followed by Tan with 5.79% equity interest.

Last Friday, 36 million of Tanjung Offshore’s shares or a 9.68% stake moved off market at 35 sen apiece. This represented an 18% discount to its closing price of 43 sen that day.

It was not clear who the transacting parties were at press time.

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This article first appeared in The Edge Malaysia Weekly, on February 2 - 8 , 2015.