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Broker's take: DBS downgrades PACC Offshore to 'hold'; lowers 12-month target price to S$0.32

ANALYSTS at DBS Group Research have downgraded their call on offshore marine services provider PACC Offshore Services Holdings to "hold" and decreased their 12-month target price on the stock by 9 per cent to S$0.32 from S$0.48.

This comes as PACC's second-largest shareholder Malaysian Bulk Carriers Berhad (MBC) has targeted to dispose its 21 per cent stake in PACC through a share offering to its existing shareholders by H2 2018.

MBC's rationale for the sale of the stake is to ease its cashflow burden over the next 12 to 30 months. Proceeds from the sale will be used for working capital, repayment of borrowings and newbuild capital expenditures.

Listed on Bursa Malaysia, MBC is the largest drybulk shipowner in Malaysia and is affiliated to the Kuok Group, PACC's largest shareholder. Moreover, the group's subsidiaries, Kuok (Singapore) and Kuok Brothers Sdn Bhd, hold a 35 per cent and 14 per cent stake in MBC, respectively.

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The indicative price offer for the deal is based on a discount of between 15 and 30 per cent of the prevailing price of PACC's shares.

The analysts said: "We believe the announcement is net negative for PACC's share price, as the proposed sale price range represents a substantial discount to the current trading price. Hence there could be downward pressure on PACC's share price in the near term."

They added: "MBC's chosen route of raising funds through the disposal of the PACC stake to its own shareholders rather than a rights issue or bulk sale to institutional investors is also unconventional, and could either signal lack of confidence in recovery of the drybulk market from existing investors or weak institutional demand for PACC's shares."

If the Kuok Group accepts its entire entitlement of the offer, it would increase its shareholding in PACC by 10.3 per cent and if other minority shareholders in MBC also exercise their rights to the offer in entirety, PACC's free float would be boosted from the current 18.5 per cent to around 29.4 per cent, which is positive, DBS said.

However, DBS cited a possible privatisation attempt by the Kuok Group if PACC shares continue to decline in value as a wildcard upside catalyst and a risk to its downgrade call.

PACC shares were trading at S$0.35 as at 9.35am.