Friday, April 01, 2011

Over Eager Reporting and Research

RHB Research found itself in a stinkhole with a stick and 10 feet of shit. Now trying to dig itself out over a silly, frivolous, dubious, unchecked commentary on the acquisition of Garuda Energy by Perisai for $70m. Apparently the same asset was sold to the same person in 2010 for just $5m. Its so easy to jump to the conclusion that this was not an arms length transaction. But again, any analyst or journalist worth his/her salt would have suspected that such a blatant mispricing would never been considered by even the most thieving of boards.


Now RHB Research has scrambled out a new report saying that the previous one should be withdrwan and basically they were very wrong and that its actually a good deal. Yes, dear, RHB Research was very wrong, but not before causing a mini sell down in Perisai shares. How to account for those uncles and aunties who sold in panic.

Bursa had no choice but to act and wanted more information based on the early RHB Research report which made The Star and The Edge Daily.


We refer to your Company's announcement dated 29 March 2011 in respect of the above matter. In this connection, kindly furnish Bursa Malaysia Securities Berhad ("Bursa Securities") with the following additional information for public release:-

1. The number of consideration shares to be issued.
2. The source of fund for the Proposed Acquisition and its breakdown.
3. The description of business carried on by Target Company.
4. The date of incorporation of Target Company.
5. The cost incurred by Target Company in converting Rubicone into a Mobile Offshore Production Unit.
6. The particulars of all liabilities, including contingent liabilities and guarantees to be assumed by Perisai arising from the Proposed Acquisition.
7. The names of Target Company's directors and substantial shareholders and their respective shareholdings.
8. The date Gryphon Energy (M) Sdn Bhd ("GEM") was awarded a contract to lease, operate and maintain a MOPU for a period of 2+1+1 years.
9. The basis in arriving at the expected revenue to be generated by GEM of approximately of USD25 million per annum .

10. The names of GEM's directors and substantial shareholders and their respective shareholdings.
11. Further clarification on the basis of arriving at the purchase consideration.
12. The justification for the issue price of RM0.65 per consideration share which is more than 10% discount of the current market price.

13. The details of the asset owned by the Target Company. 14. The original cost of investment and date of investment by the vendor in the Target Company.
15. Further clarification on the rationale for the acquisition of the Target Company from the vendor in view of the disposal of the Target Company to the vendor in 2010. 16. The details of the prospects of the Target Company. 17. The financial effects of the Proposed Acquisition including on earnings per share, net assets per share, gearing, share capital and substantial shareholding of Perisai.

18.The operational impact of the Proposed Acquisition on Perisai.
19. In view of the interest of Dato Dr. Mohamed Ariffin bin Hj Aton in the Proposed Acqusition as disclosed in the announcement, to clarify whether the transaction is a Related Party Transaction pursuant to Paragraph 10.08 of the Main Market Listing Requirements (" LR").

20. To also state the basis of the Board Directors’ recommendation to grant approval for Perisai to enter into the Term Sheet with the vendor (which material terms contained therein, shall be a binding agreement), taking into consideration the Board of Directors’ opinion as stated in Perisai’s announcement dated 10 May 2010 that the disposal of Garuda Energy (L) Ltd to Mr Nagendran Nadarajah was in the best interest of Perisai.
21. The highest percentage ratio applicable to the Proposed Acquisition pursuant to paragraph 10.02(g) of the LR.
22. All other relevant information as stipulated under Appendices 10A and 10C of the LR.

Please furnish Bursa Securities with your reply via an announcement within one (1) market day from the date hereof.

Yours faithfully
Head, Issuers Listing Division Regulation



Perisai wasted no time in drafting the reply immediately:



We refer to our announcement dated 29 March 2011 ("Announcement") and the query letter from Bursa Malaysia Securities Berhad (“Bursa”) dated 30 March 2011 requesting for additional information in relation to the Proposed Acquisition.

A. At the outset we wish to state that we have entered into a Term Sheet which are subject to preconditions stated in our Announcement at paragraph 3.3 which we restate for ease of reference:-

3.3 The Proposed Acquisition is conditional upon satisfactory completion of the following Conditions Precedent:-

(a) Upon the Target Company’s receipt of the first bare boat charter payment from OIL CO, which evidence of receipt shall be furnished to Perisai;

(b) The Target Company securing an external borrowing sufficient to cover the cost of Mobile Offshore Production Unit (“MOPU”) conversion;

(c) MOPU is completed based on OIL CO specifications as contracted with OIL CO and Perisai being satisfied that MOPU has been completed in accordance with the specifications;

(d) Perisai Board of Directors’ and Shareholders’ approvals obtained;

(e) Regulatory approvals (including the listing of the new ordinary shares) being obtained to enable the parties to proceed with the Proposed Acquisition;

(f) Lenders’ approvals (if necessary) being obtained for Perisai to enter into the Proposed Acquisition;

(g) Perisai being satisfied with the results from the due diligence (technical, legal and financial) carried out on the Target Company.

In the event that any of the conditions cannot be satisfied within the stipulated time or the SSA is not executed within 90 days from the date of the Term Sheet (or within any such extended period as may be agreed upon by the parties), this proposal shall lapse and in such event, the Earnest Deposit shall be refunded within 14 days to Perisai together with 8% interest per annum thereon (calculated from the date that this proposal lapses) until the amount is fully settled.

B. On behalf of the Board, we wish to state our response following the numbered paragraphs of Bursa’s letter dated 30 March 2011:-

1) The proposal is transacted in United States Dollar. It is agreed that the number of consideration shares to be issued shall only be determined seven (7) days prior to the submission of draft circular to Bursa Malaysia based on the prevailing exchange rates between Ringgit Malaysia and United States Dollar on that date.

Based on current USD to RM rate of RM3.00 to USD1.00, the number of consideration shares to be issued would be approximately 92,307,692 Perisai shares. We refer to our Announcement which states “the issuance of new ordinary shares of Perisai (“Consideration Shares”) at an issue price of RM0.65 per Consideration Shares for the remaining USD20 million (equivalent to approximately RM60 million).”

2) The breakdown for the source of fund for the Proposed Acquisition is as follows:-

a) USD 50mil (equivalent to approximately RM 150 million) cash consideration is expected to be funded via internally generated funds and/ or external borrowings and/or issuance of new Perisai shares . The actual breakdown has not been finalized at this juncture. We shall notify Bursa Malaysia accordingly once the breakdown is determined.

b) USD20 million (equivalent to approximately RM60 million) balance consideration shall be via issuance of new Perisai shares at RM0.65 per share.

3) The principal business of the Target Company is owning and chartering of offshore assets. The Target Company owns a jack up rig, named Rubicone, which is currently being converted into a mobile offshore production unit (“MOPU”)in Singapore.

4) The date of incorporation was on 3rd December 2009.

5) We are informed by the Vendor the total cost for the MOPU including the conversion cost is expected to be in the region of USD60 million to USD 70 million. The construction risks lies with the Vendor and Perisai is not exposed to any costs overrun.

6) Save as disclosed below, Perisai will not assume any liabilities (including contingent liabilities and guarantees) arising from the Proposed Acquisition, save for those reflected in the balance sheets of the Target Company , which would be consolidated in Perisai Group’s accounts with effect from the Completion Date:

The Group may be required to provide corporate guarantee(s) for the bank borrowings to be undertaken by the Target Company


7) The sole director and 100% shareholder of the Target Company is Nagendran C. Nadarajah.

8) Gryphon Energy (M) Sdn Bhd (“GEM”) was awarded the contract this year. We are unable to disclose the exact date of the award due to confidentiality.

9) The expected revenue of USD25 million is based on the bareboat charter to be entered between the Target Company and GEM.

10) The directors of GEM are Dato’ Dr Mohamed Ariffin bin Hj Aton, Nagendran C. Nadarajah and Puan Sharifah Zuraidah Bt Syid Mustafa Alqudri. The shareholders of GEM are Gryphon Energy (Asia Pacific) Sdn Bhd which holds 45% and Puan Sharifah Zuraidah Bt Syid Mustafa Alqudri who holds 55%.

11) The Purchase Consideration was negotiated on a willing buyer, willing seller basis taking into consideration the value of the asset owned by the Target Company and the potential earnings to be generated from the bareboat charter contract to be entered into with GEM, who has secured a 2+1+1 years contract from a major oil company.

12) The justification of the issue price at RM0.65 is based on an average price of Perisai shares at the point of initial negotiations.

13) The asset owned by the Target is a jack up rig which is currently being converted into a MOPU.

14) Based on audited accounts of the Target Company as at 31 December 2010, the Target Company has a Property Plant and Equipment book value of USD12.3 million and Total Assets of USD 13.6 million.

15) The Target Company which owned an old jack-up rig was disposed of to the Vendor in 2010. The rig then was without any contract and furthermore Perisai did not intend to take on any construction risk to rebuild it into a MOPU, hence, Perisai had decided to dispose of the rig in 2010.

The Target Company which Perisai is now buying, will own a MOPU(a facility which is used to process oil or gas in offshore locations) which is expected to have a certified 15-year life span and will be installed with major oil and gas processing equipment.

One of the conditions precedent to the Completion is the receipt of the charter payment from the major oil company. Perisai would only acquire the Target Company if the MOPU is operating and acceptable to the major oil company.

16) The Target Company is currently converting its used rig into MOPU and would be involved in the bareboat chartering business in the oil and gas industry. The Target Company's business prospects are dependent on the prospects of the oil and gas industry in Malaysia as well as the surrounding region.

In view of the positive prospects of the oil and gas industry and the demand for rigs by the oil and gas players, the Board believes that the prospects and future financial performance of the Target Group is expected to be favorable.

The Target Company’s revenue stream will be protected by the bareboat charter arrangement to be entered into with GEM for 2 + 1 + 1 years.

17) (a) Net Asset per share and share capital

Audited as at

31 December 2009

After adjusting for the conversion of Bonds (2)

After the


Acquisition of Intan Group(4)

After the Proposed Acquisition(6)





Share capital





Share premium





Treasury shares





Other reserves





Retained profits





Shareholders’ funds/ NA





No of Shares in issue(1) (‘000)





NA per share (RM)





Total borrowings





Gearing (times)






(1) Excluding 400,000 Perisai Shares which are held as treasury shares as at the LPD.

(2) On 24 January 2011 and 16 March 2011, a total of USD4,000,000 (being USD2,000,000 each) nominal value of the outstanding Zero Coupon Two (2)-year Redeemable Convertible Bonds (“Bonds”) were converted into Perisai Shares at a conversion price of RM0.675.

(3) After the loss on foreign currency exchange of RM1.786mil as a result of Bonds conversion

(4) After setting off estimated expenses of the Proposed Acquisition of Intan Group of RM600,000 against the share premium account of the Company.

(5) The increase in total borrowings is due to the consolidation of the total borrowings of Intan Offshore Group as at 31 December 2010 of RM91.379 million. After setting off estimated expenses of the Proposed Acquisition of the Target Company of RM600,000 against the share premium account of the Company.

(6) The increase in total borrowings assuming the consolidation of the assumed borrowings of (i) the Target Company of RM120 million and (ii) an additional of RM150 million raised via external borrowings to fund the cash consideration for the acquisition of the Target Company.

(b) Earning and EPS

The Proposed Acquisition is expected to be completed by the third quarter of 2011 and is expected to contribute positively to the earnings and the EPS of Perisai Group for the financial year ending 31 December 2011 and in the future.

(c) Substantial shareholding of Perisai. Please refer to Appendix 1

18) There will be no major operational impact of the Proposed Acquisition on Perisai as GEL would lease the asset to GEM on the bareboat charter basis i.e the operation risk is being transferred to the charterer

19) Dato’ Dr Mohamed Ariffin bin Hj Aton is only a director of Gryphon Energy (M) Sdn Bdh. This transaction is not considered a Related Party Transaction pursuant to Paragraph 10.08 of the Main Market Listing Requirements.

20) Kindly refer to points (15) and (16) above.

21) The highest percentage ratio applicable to the Proposed Acquisition is 87.26%.

This announcement is dated 31 March 2011.

My View: The asset is properly priced. Although it has the same name, there has been tons of monies poured into the asset to bring it to what it is, and it comes with a strong recurring contract as well. It comes with a substantiated contract which will propel Perisai's earnings visibility enormously. My advice to all analysts and reporters, when something is so blatantly wrong, usually its not. When something is so blatantly good, usually its not. No one here seems to even bother to pick up the phone to confirm some facts, no fact checking at all. A call to Perisai's office would have negated all that. There were some 100m shares transacted all the way down, that is a massive loss for some people. Who were buying then??? The people who knew better. Who should be responsible for the losses incurred ... hmmm ... Still, the shares should continue its upward ascendency following this quite unecessary debacle.


jazzmutant said...


Moolah said...

Err.. I got some comments but my comments not too short. :(

So I posted my comments on my blog.

elizabeth said...

It is very believable that the deail is really a great one. However, having discovered that the asset was a recycle one (albeit reworked at great cost) sold to a former controlling shareholder, now being re-sell back to the company add a different dimension to the whole episode. The current mgt was quick to say that the vendor had spent alot of money and taken risk to rework the asset to make it what it is today. What makes one wonder is that:
(1) Did perisai table the options to its shareholders (mainly the other Minority shareholders)that there is a possiblity that the Garuda asset could have been reworked, and to share with them the risk and reward? (2) Considering how fast the asset made its way back to the company at great benefit to the vendor, and the good contract he managed to secure, one cant help but wonder, has there been due deiligence exercised by perisai board when they sold the asset previously. Profitable or not, the deal now cast doubts on the integrity & capability of the perisai board and management, present and former!!

Salvatore_Dali said...


fair comment...

perisai is not at liberty to reveal too much as it was a heads of agreement term sheet for negotiations ... not to be voted on yet or ratified

but since RHB's piece, Bursa had to act, so hence the answers, which was delivered promptly

corporate governance yes, but we must also know the old mgmt is "slow and not able to take the company anywhere" ... the new CEO is the ex-MD of Sapuracrest ... thats why Ezra is in

you can question that the asset should not have been sold in the first place ... thats to the old owner ... it was a fair price then ... the owner knew he could invest in it and make it more attractive ... 12 months later, there is a big change in the makeup of owners in Perisai ... Ezra is in n the Garuda asset now has a contract, the owner actually put in US$40m to invest into Garuda, something Perisai has no financial strength to do back in 2010

its a new shareholdings, calling new shots, the Garuda thing just fell into place ... yes things could have been nicer but sometimes business evolves and changes with important shareholding changes, what was not possible is possible now

Roy said...

I saw the RHB newsflash about 9:30am March 30..sold at 87 sen only to see the price climbed up to 90 sen later of the day. The next day, Perisai plummeted to 81 sen. I wonder if the uncles and aunties were slow in getting the newsflash ;-)

clearwater said...

I go with 'elizabeth' here. Whatever or however fairly priced the asset, the whole deal raises many questions from the viewpoint of minority shareholders. As an investor, I would stay away.

tohff7 said...

Reasonably speaking, Perisai should have expected that a lot of question marks will be raised in this deal. Why not furnish further details with Bursa if the deal is soo reasonably fair and good to Perisai?