Viking Offshore And Marine Ltd - Why are land rig deals not put to shareholder vote?

16/7/2015 – Viking Offshore and Marine Ltd's (Viking O&M's) wholly-owned subsidiary Viking LR2 Pte Ltd has signed a sale and purchase agreement to buy a new-build 1,500 horsepower train-type land rig and related drilling equipment for US$15.3 mln, and lease it back to the Chinese vendor for US$31 mln for 4 years.

Viking O&M didn't reveal the name of the Chinese vendor.

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 4-year lease tenure.

That's about all Viking O&M disclosed in its July 6 announcement.

However, the accompanying press release revealed that Viking O&M had acquired from and leased back its first land rig in September 2014 to the same vendor.

The announcement was made in July, and Investor Central had reported the story on August 1.

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

Question

1. Why structure such an odd deal?

Just as in August, the whole transaction confounds us.

If the Chinese vendor has a customer, in this case a South Asian energy operator, why not just lease the rig directly to them?

Why sell it and lease it back, only to sub-lease it?

Are there tax advantages in doing this?

Or are the terms of the sub-lease such that the Chinese vendor cannot lease its own rig to the South Asian energy operator?

Does it perhaps not have enough cash to operate the rig, and needs to go "asset light"?

Whatever it is, how are Viking's shareholders benefitting from the deal?

Question

2. What is the value of the put option?

Viking O&M didn't reveal the price at which the vendor will purchase the land rig if it exercises the put option at the end of 4-year charter tenure.

Even in July last year, the company didn't disclose the value of the put option on the first land rig.

However, on page 107 of its 2014 annual report, it said, 'Under the Agreement, the vendor has irrevocably granted the Group a put option to require the vendor to purchase the land rig from the Group at any time during the period of 90 days prior to the end of the Agreement, for a cash consideration equivalent to i) the value of the land rig as determined by independent valuers or ii) the amount of US$6,000,000, whichever is higher.'

Therefore that makes us wonder if the put option on the second land rig would be subject to similar terms.


(Read the full story to get all 7 questions)

We have invited the company to an on-camera interview, and/or to reply to our questions in writing.

At the time of publication we have not received a reply (which is why you are seeing this message).

We will update this report if we do.


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