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Keppel's Floatel associate in deal to create offshore housing giant

KEPPEL Corp associate company Floatel International is merging with Oslo-listed Prosafe to create the world's largest offshore accommodation company, according to exchange filings on Tuesday.

FELS Offshore, a wholly owned subsidiary of Keppel's Offshore & Marine unit, currently owns a 49.92 per cent stake in Floatel.

Under the proposed deal, Prosafe will acquire all of Floatel's outstanding shares and warrants in exchange for new Prosafe shares that will give Floatel's shareholders a 45 per cent stake in the merged entity. FELS Offshore's resultant shareholding in the post-merger Prosafe will be about 22 per cent.

Floatel shareholders will also receive a number of Prosafe preference shares that will give them the right to receive up to US$20 million of dividends from the outcome of ongoing litigation between Prosafe subsidiary Prosafe Rigs and third party Westcon Yards. Once the litigation is concluded and any dividends are paid out, the preference shares will be cancelled.

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The merger will combine Prosafe's existing nine semi-submersible vessels and options for two newbuild semi-submersible vessels with Floatel's five semi-submersible vessels, Prosafe said in an announcement.

"The combined company will be positioned to take advantage of further operational efficiencies as well as enhanced global reach from an enlarged fleet," Prosafe said. "The combined entity will be better positioned to sustain a prolonged cyclical downturn, with challenging market outlook and falling utilization and reduced hook up and commissioning work."

Keppel said that the exchange ratio was arrived on an arm's length basis between Floatel and Prosafe, and utilised an asset-based future earnings valuation methodology, taking into consideration the age, specifications and earnings potential of their respective fleet assets.

Following the completion of the deal, the merged entity’s largest shareholders will be FELS Offshore which will hold 22 per cent, funds managed by Oaktree Capital Management which will have 19 per cent, and HitecVision with 16 per cent of the shares, on a fully diluted basis.

Shareholders have also agreed to a 12-month lock-up of their shares after the transaction completes, Prosafe added.

If all conditions are met, the deal is expected to conclude by the third quarter of 2019, subject to a long stop date of Dec 31. Conditions include clearances from competition authorities in Norway and UK, as well as creditor and shareholder approvals. It is also conditional on the continued listing of Prosafe on the Oslo Stock Exchange.

The new entity has a combined contract backlog of around US$225 million, as at March 31. A further US$102 million in contracts were secured since end-March. They include Prosafe snagging a three-year US$80 million contract with Petrobras for Safe Eurus in Brazil and Floatel's contract extension for its Floatel Superior charter at Equinor’s Martin Linge project, worth US$22 million.

Prosafe said that the merged entity's revenue exceeds US$600 million for the year ended Dec 31, 2018, with an EBITDA of more than US$300 million.

In fiscal 2018, Prosafe had revenue of US$331 million, up 17 per cent from US$283 million a year ago. Floatel’s revenue stood at US$303 million, down 3 per cent from US$311 million a year ago.

Glen Ole Rødland, chairman of Prosafe, will also become chairman of the combined company, while FELS Offshore and Oaktree will nominate one board member each. The current financing structure for both companies will also be kept intact and separate, with the creditor process being carried out based on the principle of equal treatment between Prosafe creditors and Floatel creditors.

Keppel Corp shares slipped 0.67 per cent, or 4 Singapore cents, to S$5.97 as at 11.48am on Tuesday following the announcement.