Viking Offshore And Marine Ltd - MANAGEMENT REPLY: Why structure such an odd deal?

1/8/2014 – Viking Offshore and Marine Ltd (Viking O&M) has signed a heads of agreement to buy a new-build 1,500 horsepower train-type land rig and related drilling equipment, and lease it back to the Chinese vendor for US$32 mln for 50 months.

Viking O&M didn't reveal the name of the Chinese vendor, or the purchase price.

The vendor will further sub-lease the land rig to a 'major South-Asian energy operator' which will deploy it in North-Africa.

As per the bareboat charter agreement, the vendor also has a put option to buy the land rig from Viking O&M at the end of the 50 month lease tenure.

That's about all Viking O&M disclosed in its July 15 announcement and the accompanying press release.

In response to our questions, Viking O&M said that in its opinion, the transaction and announcement is in compliance with the Singapore Exchange Catalist listing rules.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Is the land rig acquisition a 'discloseable transaction'?

At a price of S$0.125 per share, Viking O&M's market capitalisation works out to be just under S$100 mln.

Therefore, according to Rule 1010 of the Catalist Rules, the acquisition of the land rig and drilling equipment could be a 'discloseable transaction' if the price of the rig is more than S$5 mln.

As a result, Viking O&M would have to disclose the details of the transaction as required under Rule 1010 of the listing manual.

Rule 1010 requires the company to disclose the details of the consideration, identity of the vendor, details of any call/put option attached to the acquisition, the net profit attributable to the acquisition, controlling shareholders' and/or directors' interests, etc.

Unfortunately, Viking O&M has not disclosed the price it would pay to the China-based vendor for the land rig and the drilling equipment.

But in all likelihood, the purchase price would be more than S$5 mln.

Otherwise why would the vendor sell lease it back for US$32 mln?

Back-of-the-envelope, Viking O&M will receive around US$8 mln a year for leasing it back to the vendor.

So you don’t need to be a maths genius to figure out that the sales price of the rig would be more than US$5 mln – if the deal was done on commercially-sound terms.

Therefore that makes us wonder for how much it is buying the land rig and related drilling equipment.

Is the acquisition of the land rig and related drilling equipment a 'discloseable transaction'?

Question

2. Who is the vendor of the land rig?

Viking O&M said that it would acquire the land rig and related drilling equipment from a 'Chinese land rig specialist'.

That's it. It didn't disclose the name of the vendor.

But if the acquisition is a 'discloseable transaction', it will have to disclose the identity of the vendor as required under the listing rules.
Total number of questions in the full story: 7)

Viking Offshore and Marine Ltd replied "In the company’s opinion, the transaction and announcement is in compliance with the Singapore Exchange Catalist listing rules."

We thank the company for its response.

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