ALL is not well yet for Perisai Petroleum Teknologi Bhd, as the Malaysia-based upstream oil and gas services provider is hit with a triple whammy, hampering its return to profitability.
First, it was the debilitating plunge of the global oil price. Then came the news about Perisai turning insolvent and classified under the Practice Note 17 (PN17) category.
Now, its major shareholder is about to go bankrupt.
The Singapore-listed Ezra Holdings Ltd, which holds a 22.5% stake in Perisai, voluntarily filed for bankruptcy in the United States (US) under Chapter 11 of the US Bankruptcy Code, last week. The oilfield services group had been forced to file a bankruptcy petition following the prolonged oil price slump which delivered a huge blow to its financial standing.
The oil and gas sector was hit by an unexpected downturn as global oil prices went on a free-fall, hitting as low as below US$30 per barrel compared to a high of US$102 per barrel in mid-2014.
The impact has been nasty on oil and gas-related companies, as many were forced to wade deep into the red and a large number of employees were retrenched as a result.
Perisai was one of them.
With Ezra going bust, the emphasis is now on Perisai as its associate company. For a company in the midst of financial distress, it is imperative to have strong backing from its stakeholders. Ezra’s untimely bankruptcy could deliver a damning effect on Perisai as the latter struggles to return to the black.
Perisai’s status quo is indeed worrying. In the event of Ezra deciding to dispose its stake in the upstream oil and gas service provider, it could spell a downward pressure on Perisai’s share price which is already depressed due to market conditions. In the last one year alone, Perisai’s share price tumbled by almost 74%, reaching RM0.07 as of close of trading yesterday.
Responding to queries by StarBizWeek, Perisai’s management said the company will continue to monitor the current developments, particularly with regard to Ezra’s bankruptcy.
“We consider the interests of all stakeholders including shareholders in any strategic decisions to be advanced by the company and this includes our shareholder, the Ezra Group.
“We have not, at this present time, experienced any adversity from the Ezra Group’s bankruptcy filing. We shall obviously monitor developments as they arise,” says Perisai’s management.
It is not unreasonable to expect the difficulties awaiting Perisai, with regard to possible fund-raising initiatives, moving forward.
With Ezra struggling under insolvency, it would be highly unlikely to be Perisai’s saviour and the much-needed financial back-up.
Volatility in the market pushed the upstream oil and gas service provider into triggering the PN17 criteria as it defaulted on debt repayment by its unit Perisai Capital (L) Inc. The latter issued S$125mil (RM377.27mil) medium term notes which mature on Oct 3, 2016. The S$125mil bond with a coupon rate of 6.785% was issued under Perisai Capital, and guaranteed by Perisai.
A smallish company, Perisai holds a market capitalisation of approximately RM82mil.
The company is required by Bursa Malaysia to submit a regularisation plan in relation to its PN17 status and has about six more months to do so.
Despite the strenuous operating environment that Perisai is currently in, the company has managed to consolidate its financial health in line with its intention to return to profitability.
Perisai has been successful in paring down its net loss significantly, amid the uncertainties in the oil and gas sector. In the financial year 2016 ended Dec 31 (FY16), Perisai registered a net loss of RM289.78mil, approximately 59% lower than the net loss of RM706.32mil, posted a year earlier.
However, worth to be noted, the upstream oil and gas service provider’s FY16 top line has also reduced by by almost 14% to RM185.15mil on a year-on-year basis. The drop in its overall revenue was primarily attributed to the lower revenue generation from Perisai’s drilling segment which fell by 21% to RM125.65mil in FY16.
Perisai is also serious in cleaning its balance sheet, back into a leaner form to propel the company moving forward.
In FY16, Perisai’s total liabilities have been reduced, albeit marginally, by 3.2% to RM1.38bil. To note, its total assets stood at close to RM2.1bil as of the same period.
With regard to exiting its PN17 status and addressing its current insolvent position, Perisai is expecting to announce its debt restructuring proposal by end-September this year.
“Over the course of the past five months, Perisai and its advisors have sought and obtained feedback from all stakeholders including regulators, financial creditors, as well as the bondholders. This constructive engagement is continuing with meetings and dialogues in Kuala Lumpur and Singapore.
“We anticipate finalising the debt restructuring proposal in the near term so that it can then be presented for approval by the lenders and creditors of Perisai. We envisage this by the third quarter of 2017 and shall make the appropriate announcement then,” says Perisai.
In order to further enhance the cash position of the company, Perisai has announced its intention to discontinue the operation of one of its wholly-owned subsidiaries.
Following the discontinuation, the subsidiary’s assets will be disposed and is expected to contributed about RM188.86mil net cash to Perisai.
Apart from that, the proceeds from the Perisai-Emas Offshore Ltd final settlement worth US$43mil (RM192mil) will also be vital in Perisai’s pursuit for a leaner balance sheet.
A final settlement has been brokered in December last year to allow Perisai to exercise a put option and get joint-venture partner EOL to buy the rest of the stake in SJR Marine (L) Ltd for US$43.03mil. SJR Marine is 51% owned by Perisai and the rest by the Singapore-listed Emas Offshore. The latter is also a subsidiary of Ezra Holdings.
In an earlier filing to the stock exchange, Perisai has indicated that it would use most of the initial proceed of US$20mil or about RM67mil from the settlement, to pare down its borrowings.
Moving forward, Perisai’s return to profitability will not be an easy venture.
The expectation of a continuing sluggish oil and gas sector remains a key dampener, with uncertainties in the global economic environment serving as a barrier. On its part, Perisai is well aware that the outlook for the oil and gas assets in the short to medium term remains challenging
However, it is confident in maintaining the operational efficiency of its operating assets, while remaining cautious on its capital and cost management.