Perisai Petroleum Teknologi Bhd's acquisition of an oil and gas service provider from its former major shareholder and co-founder has raised some questions relating to valuations and the seemingly related party nature of it.On Tuesday, Perisai said it was acquiring Garuda Energy (L) Ltd from Nagendran Nadarajah for a total of RM212mil, to be paid for in cash and shares. Nagendran will end up with 11% in Perisai, having just sold his 19% stake in Perisai to Singapore-listed Ezra Holdings Ltd a year ago at 48.5 sen a share for a total of RM64mil.
It isn't clear why he is coming back into a company that he left not long ago. Nagendran declined to comment.
More significantly, at the time of Nagendran's exit from Perisai last year, he had acquired Garuda from Perisai at only US$5mil.
“On the face of it, the transaction does raise eyebrows over whether the valuation is fair and whether it is a related party transaction,” said an analyst.
But Perisai managing director Zainol Izzet Mohamed Ishak explained that the asset being acquired “is quite different” from what Nagendran had acquired in 2010 from Perisai.
“What was sold to him (Nagendran) was an old jack-up rig in the United States. What we're buying now is a Mobile Offshore Production Unit (MOPU), which has a certified 15-year life span and a whole lot of (oil and gas) processing equipment,” Izzet told StarBiz.
A party familiar with the situation said Nagendran had invested about US$40mil in the asset, including the cost to transport the asset from the United States to Malaysia.
According to Perisai's statement, Garuda will be chartering its MOPU to another company, Gryphon Energy (M) Sdn Bhd (GEM), which had recently been awarded a contract by a major oil and gas company to “lease, operate and maintain a MOPU for a period of 2+1+1 years”.
Izzet stressed that the acquisition of Garuda was merely at a term sheet stage and that Perisai would soon go through the necessary due diligence of the deal.
He added: “It's a good deal for shareholders of Perisai. Nagendran has taken on risks in rebuilding the asset that Perisai would not have.”
Perisai has also stated that the acquisition of Garuda is a non-related party one. However it should be noted that the vendor, Nagendran, had co-founded Perisai and was its major shareholder until last April. Datuk Mohamed Ariffin Aton, who is the chairman of Perisai, also sits on the board of GEM. Perisai disclosed that Mohamed Ariffin is an interested party in the deal and will not be voting or voicing an opinion on the deal.
Some analysts contacted by StarBiz said it was hard to value the deal as Garuda Energy's debts were unknown and it wasn't clear as to how Perisai would fund this deal.
But other analysts said the acquisition would be earnings accretive for Perisai.
CIMB Research said Garuda would contribute RM40mil yearly to Perisai's net profit effective the fourth quarter of this year and that the acquisition's price-to-earnings ratio (P/E) is cheap, at 5.3 times.
It added that the acquisition was a strategic one as it positioned Perisai as an asset-backed oil and gas service provider with a range of technically niche assets.
ECMLibra Investment Research said that while details were scant, its back-of-envelope calculations suggested that the deal could add 42% and 79% for FY11 and FY12 to Perisai's earnings per share respectively.
Meanwhile, Yap Huey Chiang of RHB Research told StarBiz that the transaction “is a happy coincidence” as there were not many MOPUs around in the market and the price of the asset that Perisai was paying for was at prevailing market rates.
He added that Perisai would have little problem in seeking funding for the RM150mil (cash portion) for the deal as there was a ready long-term contract for the asset.