Foreign corporates eye energy firms here

Local oil and gas-related companies remain relatively attractive potential assets for overseas firms as many have made a good name for themselves, including Ezion Holdings (left), one of the largest liftboat operators in the world.
Local oil and gas-related companies remain relatively attractive potential assets for overseas firms as many have made a good name for themselves, including Ezion Holdings (left), one of the largest liftboat operators in the world.PHOTO: EZION HOLDINGS

Market observers say they are looking for bargain buys amid slump in oil prices

More foreign corporates are looking to acquire energy-related companies here as they hunt for bargains amid the oil price slump, according to market watchers.

Ms Tay Toh Sin, head of corporate finance at OCBC Bank, told The Straits Times that merger and acquisition (M&A) activity has increased in recent months.

"A number of overseas companies are now looking to take advantage of the falling valuations and market volatility to acquire oil and gas-related companies or assets here," said Ms Tay.

This is especially as the outlook for the oil and gas sector continues to hinge on uncertainty, she added.

Prices of benchmark Brent crude eased to US$48.70 a barrel yesterday - down by more than half since oil prices went downhill in June last year, roiled by shrinking demand and a supply glut.

Company valuations have come down sharply as well, with the FTSE ST Oil and Gas Index having fallen nearly 40 per cent since June last year.

It is not just companies within the oil and gas industry that are on the prowl. There has been a "high level of interest" coming from global and regional private equity firms as well, noted Mr Karambir Anand, transaction advisory services partner at financial services firm EY. While market volatility dampened M&A activity in the first six months of this year, he expects the number of deals to be "significantly higher over the next six to nine months", given the stagnant oil prices.

"There are pools of money waiting on the sidelines, ready to be deployed at the right opportunity," said Mr Anand. This, however, would likely apply only to assets that come with "low enough (valuations) and a reasonably long investment horizon", he added.

Oil and gas-related players here have been hit hard by the weakness in the oil market, with some struggling to keep afloat with delayed contracts or fewer new orders on top of cashflow and credit issues.

Rigbuilders Keppel Corporation and Sembcorp Marine, for instance, have also yet to secure any new rig orders this year.

But local oil and gas-related companies remain relatively attractive potential assets for overseas firms, particularly those in the region, said RHB Research Institute analyst Lee Yue Jer.

Oilfield services group Ezra Holdings, for instance, announced in August that it is selling a 50 per cent stake in its subsea unit to a Japanese firm for US$180 million.

"At a regional level, our companies are making a good name for themselves," he said, citing Ezion Holdings, one of the largest liftboat operators in the world, and Triyards, known to be the world's lowest-cost liftboat builder and one that consistently delivers high-quality platforms.

Ms Tay added that local oil and gas companies that are struggling or are not willing to ride out the down-cycle have become "more inclined to discuss restructuring and divestment deals". "Such deals are a way for companies to raise capital and improve their financial positions, such as improving their gearing ratio and cash flows."

Still, she believes that it will be some time before more of such deals fully materialise.

"Many potential buyers are waiting to see how the market develops in the next few months before taking concrete action," she said.

"There is likely still a price gap separating sellers and potential buyers, who may be waiting for valuations to dip further."

A version of this article appeared in the print edition of The Straits Times on October 16, 2015, with the headline 'Foreign corporates eye energy firms here'. Print Edition | Subscribe