This article first appeared in The Edge Malaysia Weekly on June 18, 2018 - June 24, 2018

NIK Hamdan Daud, the controlling shareholder of Barakah Offshore Petroleum Bhd, is looking to sell a substantial portion of his stake, industry sources say.   

Nik Hamdan currently has a 40.1% stake in Barakah and is the single largest shareholder. It is worth noting that the share price has tumbled to 18.5 sen from 60 sen a year ago.

It is understood that at least three companies have expressed interest, but nothing has been firmed up as yet.

Two of the companies that have expressed interest are said to be Serba Dinamik Holdings Bhd and Samling Group, while the name of the third one, which is said to be a foreign outfit, is still under wraps.

Barakah closed at 18.5 sen last Wednesday, translating into a market capitalisation of RM152.9 million, compared with its peak of RM1.83 per share in February 2014. Based on 18.5 sen, Nik Hamdan’s block is valued at RM61.31 million.

Assuming that he sells 30% shareholding to avoid triggering a general offer, and a 10% premium is offered to the trading price, the buyer may have to fork out RM50.46 million.

Should Nik Hamdan sell the block of shares at the current price, it could help Samling reduce its average holding cost in Barakah.

Samling acquired as many as 82.55 million shares or 10% equity interest in July last year, and increased its shareholding to 13.57% or 112.05 million shares in early November last year. From early June to end-November last year, Barakah’s share price averaged 51.2 sen.

Apart from its 13.57% holding in Barakah, Samling also controls ailing Singapore-based Otto Marine Ltd, which has its mainstay in the building of offshore support vessels.

The Edge has not been able to contact Nik Hamdan. He did not reply to text messages or pick up telephone calls.

A source familiar with Barakah says that he had heard that Serba Dinamik was eyeing Nik Hamdan’s block but added that he had not heard of any prospective buyers visiting the company’s office. He questions at what level the talks are taking place.

“No one has been asking for the accounts and no one is conducting a due diligence,” he says.

However the acquisition of a stake in Barakah is at the shareholder level, and therefore may not involve the company as yet.

Another source says Serba Dinamik had expressed interest but had offered too low a price. Others say the company got spooked after Barakah’s external auditors, Crowe Horwath, issued a statement of “Material uncertainty related to going concern” of Barakah in early May, after release of the company’s financial statements for the financial year ended Dec 31, 2017 (FY2017).

“As at Dec 31, 2017, the group incurred a loss after tax of RM216.75 million and negative operating cash flow of RM71.83 million and (had) fixed deposits amounting to RM102.71 million with licensed banks.

“The group’s borrowings that are due for repayment in the next 12 months amounted to RM38.53 million as at Dec 31, 2017. These factors indicate the existence of a material uncertainty which may cast significant doubt on the ability of the group to continue as a going concern,” Crowe Horwath says.

The accounting firm adds that the ability of Barakah to continue as a going concern is dependent on it generating sufficient cash flow from operations, the partial release of the group’s fixed deposits pledged as security for certain banking facilities and the recoverability of current tax assets. It questions Barakah’s ability to discharge its liabilities in the normal course of business.

Barakah’s main asset is a shallow water pipelay barge, Kota Laksamana 101 (KL101), which was built in 2012 at a cost of some RM300 million.

Things have been difficult for Barakah after the meltdown of crude oil prices that started in late 2014, which plunged from a record of US$145 per barrel to below US$30. The company was profitable before the collapse.

The whopping loss of RM216.7 million in FY2017 was the company’s largest. The loss was due partly to a project loss of RM89 million and impairment on KL101 amounting to RM44 million. Due to the cash-flow deficit, the company’s cash pile shrank from RM220 million at end-2016 to RM132 million at end-2017. It dropped further to RM109.77 million at end-March.

For its first three months ended March 2018, the company suffered a net loss of RM19.93 million on revenue of RM19.38 million. As at end-March, Barakah’s long-term debt was RM161.13 million and short-term borrowings RM28.91 million.

Barakah’s net asset per share as at end-March this year was 21.62 sen, only a little higher than its share price.

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