The company confirms that the RM173.9m jack-up rig does not come with a contract in hand

by SHAZNI ONG / pic by BERNAMA

ICON Offshore Bhd’s move to buy the Perisai Pacific 101 (PP101) jack-up rig from Perisai Petroleum Teknologi Bhd (PPTB) must include charter contracts to make it a good investment, analysts said.

The company recently confirmed that the US$41.79 million (RM173.85 million) jack-up rig did not come with a contract in hand.

Maybank Investment Bank Bhd (Maybank IB Research), in a post-briefing note on Tuesday, said the rig is currently idle and is tendering for several short-term contracts for 2021 works.

With the deal expected to be concluded by end-December 2020, Maybank IB Research said the company will incur zero utilisation for the PP101 rig in the first quarter of 2021 (1Q21), as the start dates for the tenders will only commence from 2Q21 onwards, earliest.

“Putting things into perspective, Icon Offshore has a high chance of securing contracts for PP101, based on prevailing market daily charter rates (DCRs) of US$60,000-US$70,000.

“It is now in the same category as Velesto Energy Bhd — locally owned, locally funded and debt-free. Previously, under PPTB, PP101 was categorised below Velesto; debt was overseas-funded,” the research firm said.

While Icon Offshore remains tight-lipped on its daily drilling cost, Maybank IB Research estimates it to be in the range of US$30,000, which equates to its cash breakeven cost.

“We estimate its daily profit and loss breakeven cost to be around US$37,000, after imputing for a depreciation cost of US$6,000, 3% Labuan-based taxes and others. All in, the PP101 rig’s yearly cost will amount to US$14 million.

“To break even, we estimate it needs to secure a DCR of US$75,000 for a 180-day job (50% utilisation) or US$50,000 for a 270-day job (75% utilisation). Those equate to net debt/ Ebitda of 17 times above its eight times for FY20 (financial year 2020).

“Alternatively, assuming a DCR with a range of US$60,000 to US$70,000 and a 90% utilisation level, its net debt/Ebitda ratio will fall to two times. Icon Offshore can instantly turnaround, earnings-wise, at US$6 million to US$9 million per annum, which would more than offset the losses at its offshore support vessel operations,” the firm said.

Maybank IB Research maintained a ‘Sell’ call and target price of 10 sen on Icon Offshore, and said asset underutilisation, constant cash-burns and rising debts risks would weigh down the deal.

In a Bursa filing last Friday, Icon Offshore said its wholly owned unit, Icon Fleet Sdn Bhd, on Oct 2 entered into a memorandum of agreement with seller Perisai Pacific 101 (L) Inc, Oversea-Chinese Banking Corp Ltd and PPTB for the purchase of the rig.

Icon Fleet also entered into a share sale agreement with PPTB for the purchase of a 51% stake in Perisai Offshore Sdn Bhd, for RM1.06 million.

The deal includes the deed of purchase and assignment of intellectual property with Perisai Drilling Sdn Bhd, Perisai Drilling Holdings Sdn Bhd and PPTB for RM2.07 million.

The proposed acquisitions, which led to a total cash consideration of US$42.54 million, will be funded from the proceeds of the group’s rights issue with warrants and new borrowings.

In August, Icon Offshore posted a net profit of RM6.9 million from a net loss of RM3.8 million for its 2Q20, while revenue was up 11.68% year-on-year to RM56 million from RM50.14 million a year ago.

For the first six cumulative months, Icon Offshore recorded a net profit of RM27.26 million compared to a net loss of RM11.45 million in the same period last year. In contrast, revenue grew 14.11% to RM104.88 million from RM91.91 million.

Icon Offshore’s shares closed unchanged at 10 sen yesterday, valuing the company at RM279.76 million.