China's CRRC to inject S$23.65m into Vallianz

Singapore

CHINA'S state-owned rail corporation CRRC is set to pick up a 13.9 per cent interest in Vallianz Holdings through S$23.65 million of equity injection as the Chinese state-owned enterprise (SOE) seeks to branch out into the offshore and marine sector.

CRRC is listed on the Hong Kong and Shanghai stock exchanges and boasts a market capitalisation of over HK$321.5 billion (S$59 billion) as at Jan 22.

The proposed investment will see CRRC's two subsidiaries, CSR Zhuzhou Electric Locomotive Research Institute (Hong Kong) Co Ltd and CRRS (Hong Kong) Co Ltd, subscribing to 550 million of new shares in Vallianz at S$0.043 per share.

The parties involved expect the transaction, which is conditional to due diligence by CRRC, to be completed by March 2016.

CRRC will hold 13.9 per cent of the enlarged share capital in Vallianz once the transaction is completed. This will in turn, dilute the combined interests of two other Vallianz's major shareholders, Rawabi Holding and Swiber Holding to 39.7 per cent. Prior to CRRC's investment, Swiber and Rawabi hold 26.5 per cent and 19.7 per cent interests, respectively.

CRRC, Swiber and Rawabi have agreed to observe a moratorium period of one year from the date of completion of the transaction towards their shareholdings in Vallianz.

Vallianz's chief executive, Ling Yong Wah told The Business Times that CRRC has set sights on diversifying into the offshore and marine business, with specific intent to promote the use of the Chinese SOE's proprietary diesel electric (DE) propulsion technology.

"Partnering a vessel operator (in Vallianz rather than with a shipyard) will allow CRRC to better showcase its technology, (which) has already been applied to several vessels in China," Mr Ling explained.

CRRC is understood to have approached Vallianz several months ago after conducting a search for a suitable vessel owner-operator as an investment candidate. Vallianz was selected because it has offshore support vessels (OSVs) "operating all around the world, and more importantly, because the Singapore-listed offshore support vessel player designs its own vessels", Mr Ling said.

But the Vallianz chief executive also clarified that the tie-up with CRRC is not conditional on the Singapore-listed OSV player modifying its entire fleet to run on CRRC's DE propulsion technology.

Through the tie-up with CRRC, Vallianz will nonetheless be associated with "one of the largest industrial groups comparable in scale to Siemens and ABB", the chief executive said. Siemens and ABB are two other major technology enablers in the newbuild OSV market.

Access to newbuild technology aside, Vallianz is looking to strengthen its balance sheet through the additional S$23.65 million cash boost tied to CRRC's share subscription, Mr Ling said. The cash to be injected by CRRC will go towards working capital for "smoothening OSV operations" under existing contracts in the pipeline.

CRRC's proposed investment was unveiled on the SGX after Vallianz indicated on an earlier Jan 19 announcement that the company has been "in final stages of discussions with several strategic investors on the terms of a possible fund-raising exercise since Jan 15".

Prior to this, Vallianz on Dec 15 said that its subsidiary, Rawabi Vallianz Offshore Services (RVOS), was mulling refinancing the bulk of its bank loans amounting up to 1.1 billion riyals (S$419 million). The refinancing exercise, which will see the transfer of RVOS's fleet of 20 vessels - on which the loans have been secured - to a special purpose vehicle, will see Vallianz's total liabilities almost halved to US$369 million.

The proposed initial cash injection from CRRC compared with the total liabilities on Vallianz's books seems relatively insignificant, an industry watcher said, while suggesting that Vallianz may be aiming for more strategic benefits from a tie-up with the Chinese SOE.

China is considered an emerging pocket of demand for offshore wind installation. Singapore-listed Ezion Holdings has entered into a strategic cooperation with a Chinese SOE for the provision of service rigs to load, construct, transport and install wind turbine projects off China.

Mr Ling would not be drawn to comment on the potential OSV demand from China's offshore wind installation, but instead flagged continued interest in new opportunities opening up in Venezuela and Egypt. He also described Iran as "one of our new focus markets in the Middle East", now that sanctions against the Organisation of the Petroleum Exporting Countries (Opec) member are being lifted.