SINGAPORE (Apr 4): DBS is downgrading its call on PACC Offshore Services Holdings (POSH) to “hold” from “buy” previously with a lower target price of 32 cents.
Malaysian Bulk Carriers (MBC) announced that subsidiary Lightwell Shipping Inc (LSI) is planning to dispose its entire 21.23% stake in POSH to all shareholders of MBC by way of a renounceable restricted offer for sale (ROS).
MBC – with its 21.23% stake – is the second largest shareholder in POSH, after parent Kuok (Singapore), which holds 60.30%.
The disposal is expected to be completed by 2H18.
MBC, Malaysia's largest drybulk shipowner which is listed on Bursa Malaysia, is also affiliated to the Kuok Group, and Kuok (Singapore) directly owns 34.46% in MBC, while another 14% is held by Kuok Brothers.
According to a Wednesday report, analyst Suvro Sarkar says if the Kuok Group companies were to accept their entire entitlement of the offer as a shareholder of MBC, the group would end up with an additional about 10.3% shareholding in POSH.
In addition, if other minority shareholders in MBC also exercise their rights to offer in entirety, POSH’s free float would be boosted from the current 18.47% to about 29.4%, which the analyst deems as positive.
However, the analyst believes that the pricing is worrying for existing shareholders as the offer price is not yet finalised and will depend on market conditions.
In addition, the proposed ROS is not underwritten, and there is no minimum acceptance level that will result in the ROS not being carried out. Hence, the eventual take-up of the shares is purely dependent on demand from shareholders of MBC, including Kuok Group entities.
According to MBC, its rationale for selling its stake is to help ease its cashflow burden over the next 12 to 30 months, with proceeds directed to working capital, repayment of borrowings and newbuild capex.
This decision came on the back of MBC experiencing strained cashflow due to weakness in the drybulk sector.
“We believe the announcement is net negative for POSH's share price, as the proposed sale price range represents a substantial discount to the current trading price,” says Sarkar.
Therefore, the analyst reckons that there could be downward pressure on POSH’s share price in the near term.
MBC’s decision to raise fund through this disposal is deemed unconventional and could either signal lack of confidence in recovery of the drybulk market from existing investors or weak institutional demand for POSH’s shares.
As at 1.00pm, shares in POSH are trading 1 cent lower at 34 cents or 1.1 time FY18 book.
