Nam Cheong Invests $31M in BBR to Further Expand into Indonesian Market



Nam Cheong Limited (Nam Cheong, or together with its subsidiaries, the Group), a leading global offshore marine player listed on the Main Board of the Singapore Exchange Securities Trading Limited (the SGX) and Malaysia’s largest Offshore Support Vessel (OSV) builder, announced Monday that it has entered into a binding Heads Of Agreement (the HOA) with Marco Polo Marine Limited (MPML) in relation to a proposed investment in MPML’s indirect subsidiary, PT Pelayaran Nasional Bina Buana Raya Tbk (BBR).

This is the second significant initiative undertaken by Nam Cheong to further extend its interests in the attractive Indonesian oil and gas market, following the forming of a joint venture in Indonesia in September 2013 to own, operate and charter marine vessels.

MPML is an SGX Mainboard listed integrated marine logistic company, principally engaged in the business of ship chartering and shipyard services while BBR is an indirect subsidiary of MPML in which MPML holds a 49.6 percent deemed interest. BBR is a reputable shipping company based in Indonesia and listed on the Bursa Efek Indonesia (Indonesia Stock Exchange), primarily engaged in the business of ship owning and chartering through its two divisions of Tugs and Barges Division, and Offshore Marine Division.

Under the HOA, Nam Cheong has agreed to subscribe up to 1.6 billion new shares in BBR’s rights issue, at an issue price of $0.0230 (IDR 230) per share, which was determined on a “willing-buyer, willing-seller basis”. Upon the completion of the rights issue, the Group may hold up to approximately 30 percent of the enlarged share capital of BBR, for a total consideration of approximately $30.7 million (approximately SGD 39.0 million), funded through the Group’s internal resources.

Rationale

Leong Seng Keat, Nam Cheong’s CEO said, “It is our plan to develop strategic partnerships with regional players to strengthen our position in cabotage-protected countries. Investing in BBR provides us with the platform to gain a foothold in the cabotage-protected Indonesia market given BBR’s extensive network and strong presence in the country.”

With the proposed investment of $30.7 million (approximately SGD39.0 million), BBR will utilize part of the proceeds to purchase five small- and mid-sized OSVs, which are appropriate for plying Indonesian waters, from Nam Cheong for $85.0 million (approximately SGD 108.0 million).

Leong added: “The investment serves not only to increase our vessel sales but also lays the groundwork for potential future vessel purchases by BBR from the Group.

“In addition, this represents our second entry into vessel chartering in the vibrant Indonesian market. With this solid working relationship in place, we believe that it would strengthen our position in vessel chartering in Indonesia by further enhancing our presence in this vibrant market. The Indonesian market presents very exciting prospects for us, driven by an upsurge in E&P activities.”

The vessel chartering business segment remains a small yet important and fast growing part of Nam Cheong’s operations, with the revenue segment having grown 73 percent to MYR 65.1 million between FY2012 to FY2013. In addition, the latest quarter, 2Q 2014, saw revenue climb 33 percent to MYR 47.3 million from MYR 15.6 million in 2Q 2013, following the expansion of its chartering fleet since 1Q 2013. With 15 vessels for chartering to date, Nam Cheong is in a strong position to tap on the increasing regional vessel chartering opportunities.

Board Composition

The Board of Directors of BBR will consist of five members of which one will be appointed by BBR, two to be appointed by MPML and one by Nam Cheong, and an existing independent director for whom the appointment is at MPML’s discretion.

In a separate press release, Nam Cheong disclosed Monday that it has sold three vessels worth approximately $41.0 million (approximately SGD 52.1 million).

These three contract wins are on the back of five vessel sales to PT Pelayaran Nasional Bina Buana Raya tbk (BBR), secured during the same month, bringing the total orders in September 2014 to eight which are collectively worth approximately $126.0 million (approximately SGD 160.1 million).

Leong Seng Keat, Nam Cheong’s CEO said: “The regional and global OSV industry continues to see good demand for shallow water OSVs, despite some softening of oil prices. As evidenced by the securing of these orders which has helped buoy our order book to a healthy level of approximately MYR 1.9 billion, we continue to be a beneficiary of the robust growth in the shallow water segment.”

One 5,150 brake horse power (bhp) Anchor Handling Towing Supply Vessel (AHTS) was sold to a Norway-based repeat customer, Vega Offshore Group, which is in-line with the customer’s fleet expansion plan.

In addition, orders for two 6,500 bhp AHTS vessels were also secured from repeat customers of which one is based in Asia and the other, from Vroon B.V. which is based in the Netherlands.

Vega Offshore Group is an OSV owner, operator and commercial manager providing high quality offshore support services to the global market. The Asian customer is an emerging player with a strong reputation in the ship agency services and service broking business while Vroon B.V. is an international shipping company with experience that has spanned more than a century.

Leong said: “These three orders, of which two are from European customers, represent the results of our sustained pursuit of being at the forefront of the OSV industry as a global player, beyond the shores of Malaysia. It is a clear testament to the quality, reliability and track record of the delivery of our vessels which has garnered strong confidence from all three repeat customers.”

BBR is an indirect subsidiary of Marco Polo Marine Limited (MPML). The Group had entered into a binding Heads Of Agreement (HOA) with MPML in September 2014 in relation to a proposed investment of approximately $30.7 million (approximately SGD 39.0 million) in BBR, of which Nam Cheong may hold up to approximately 30 percent of BBR’s enlarged share capital. As part of the HOA and the proposed investment, BBR had entered into memorandums of agreement with the Group to purchase five vessels from Nam Cheong.

Leong concluded: “We are delighted that our efforts in building Nam Cheong into a robust enterprise have continued to transcend geographical boundaries. Looking ahead, we are confident that our core focus on our shipbuilding and chartering businesses will light the path forward while our investments and strategic collaborations with MPML recently will reap rewards for Nam Cheong in years to come. In addition, we will continue to direct our efforts within the shallow water segment of the OSV industry which is more resilient to oil price fluctuations and has largely helped to drive our contract wins.”

The eight vessels, including the five vessels sold to BBR, are all of American Bureau of Shipping (ABS) class and are being constructed as part of Nam Cheong’s built-tostock series in the Group’s subcontracted yards in China. These vessels are scheduled for delivery in 2014 and 2015 and are expected to contribute positively to the Group’s earnings for the financial year ending Dec. 31 and Dec. 31, 2015.

Nam Cheong revealed that the 5,150 bhp AHTS sold is 193 feet (59 meters) long and the American Bureau of Shipping (ABS)-classed vessel is equiped with dynamic positioning (DP) system 1 and has a bollard pull of 60 tons. The other two 6,500 bhp ABS-classed DP2 AHTS that were ordered measure 213 feet (65 meters) in length and is equipped with a bollard pull of 80 tons.



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