Hassan Basma blazes a trail with Swissco buy-out offer

THESE days, Hassan Basma is better known for blazing a trail by cutting the first deal that will bring new equity for Singapore's cash-strapped offshore and marine (O&M) sector.

Yet, the chairman of the little-known buyout firm Asian Strategic Turnaround Ventures that was revealed as the white knight for financially troubled Swissco Holdings is no stranger to the sector.

He was formerly the chief executive of Bumi Armada, which he had transformed into a diversified O&M group and publicly floated on the Kuala Lumpur Stock Exchange. Bumi Armada now stands as among the world's five largest floating production contractors by fleet size, in addition to laying claim to operating one of the largest fleet of offshore support vessels (OSVs) in South-east Asia. Prior to joining Bumi Armada, Mr Hassan also held senior executive positions with blue-chip O&M names - SBM Offshore and Kvaerner Engineering & Construction.

With decades of experience behind him, it was no accident that he would have re-emerged in the limelight, this time for leading the newly set-up private entity, Asian Strategic Turnaround Ventures, to land a buyout deal for Swissco Holdings' offshore support vessel fleet with the listed group's judicial managers (JMs).

At the time of penning the deal with Swissco's JMs last September, Singapore's O&M sector had already entered into the third year of a protracted downturn. Liquidity almost dried up as investors took flight from the sector. So it is fair to say that Mr Hassan had pulled off a feat that others had not managed before - that is to muster enough investor interest to buy out an entire Singapore OSV business, not just grabbing distressed assets on a piecemeal basis.

Mr Hassan tells The Business Times that the buyout offer for Swissco was made possible because the investors behind Asian Strategic Turnaround Ventures are "a group of like-minded people who have gone through market cycles and share similar experience in turning around companies".

He acknowledges that Swissco's fleet comprises mainly lower specification OSVs that no longer command clout with oil companies. In light of vast excess supply in the OSV sub-sector and a drastic decline in O&M contracting activity, vessel charter rates have also tested historic lows.

Mr Hassan holds the view that OSV charter rates have already seen slight upticks especially in certain markets but he qualifies that "full-steam recovery is still three to four years down the road". Despite generally grey skies with few visible silver linings ahead, Mr Hassan is confident that post-acquisition, Swissco will break even at just "40 to 50 per cent fleet utilisation".

For sure, what helps to lower the break-even point for the buyout firm is the low acquisition cost for Swissco's OSV business, which values vessels on the fleet at an average of over US$1 million apiece. This deal, which remains subject to the approval of Swissco's shareholders, is also made possible with the blessings of the bank lenders who will have to take on haircuts for, among others, loans tied to the OSV fleet.

Mr Hassan describes the current O&M downcycle as "a structural shift", which means recovery will be long and arduous. Considering this, what banks have done in previous cycles by restructuring loans and providing breathing space to their O&M clients would prove inadequate. "Banks will have to take writeoffs in addition to conventional measures."

But Mr Hassan is quick to point out that his buyout offer comes with the promise to retain Swissco's existing team in addition to pressing on with operating the existing fleet. To the chairman of Asian Strategic Turnaround Ventures, the buyout firm should not be confused with those "hunters" on the prowl now for bargain buys with little if any regard for the sustainability of existing businesses.

Instead of "hunters", Singapore needs more "farmers" who can help to consolidate and rehabilitate its embattled O&M sector. Such "farmers" are drawn to long-term, stable yields so with a lack of visible recovery, the OSV sub-sector is mostly off the radar for these investors. But they have already made their presence felt in one O&M sub-sector.

Mr Hassan observes that private equity "has entered in a big way" into the floating production business, that he says will lead the charge in the broad-sector recovery that is shaping up with oil prices rebounding to above US$60.

Singapore-listed O&M players are primarily exposed to the OSV sub-sector so many are unlikely to get on board this first boat to recovery.

But Mr Hassan's floating production-focused start-up, HBA Offshore, stands out as an exception. The Business Times understands that the ex-Bumi Armada CEO has already secured seed funding from one private equity firm for this Singapore-incorporated start-up. HBA Offshore is also believed to have landed its first floating production contract in Nigeria.

Mr Hassan says HBA Offshore is eyeing leasing and operating contracts for floating production projects with capital expenditure ranging between US$200 million and US$650 million. "With each project, private equity takes at least 70 per cent ownership and we take up to 30 per cent equity and handle the execution and operations."

The intent, he says, is eventually to publicly float HBA Offshore. Subject to market conditions, this is targeted to take place by 2021.