Wednesday, 23 April 2014

IPO of POSH (Pacc Offshore Services Holdings)

Today I will blog on the IPO of one of my former clients, POSH. IPO price S$1.15 with market cap of S$2.038 billions, starts trading 25 Apr 2014. 

Herein, I will provide insight from industry insider point of view rather than Fundamental Analysis of the Facts & Figures. This is because the Facts & Figures analysis is already performed excellently from another blogger's page. See hereFor prospectus, refer here


Background

POSH is a spinoff when Kuok's Pacific Carriers Limited (PCL) bought Sembco from PSA in 2007 for $500 millions. See news here. Few years later End 2012, PCL makes another acquisition subscribing to 67% of the shareholding of DDW SEA and renamed it DDW-Paxocean. See news here. Today DDW-Paxocean had 6 shipyards in Singapore, Batam and China. 

Internal Shipbuilding Relationships

Almost all of POSH new vessels are built in their sister DDW-Paxocean yards. In order to supplement Paxocean with shipbuilding orders to sustain her extremely huge fix overheads, very often POSH were forced to take on speculative newbuild plans. These are newbuilds without firm contracts which includes the two 750 men offshore accommodation semi-submersibles built in Paxocean greenfield Zhuhai shipyard. It can be risky.

Competitive Chartering

Bourbon Offshore, a French Shipowner with similar businesses and vessels to POSH has over 400 offshore vessels, with more than hundreds of them delivered within the past few years, all HUNGRY for jobs. Then there are also the recently listed Pacific Radiance, Mermaid Marine Australia (who recently acquired Jaya) who will all provide the market with over-supply of vessels. Other competitions will comes from Swire, Tidewater, Farstad, Ezra, China Oilfield Services Limited (“COSL”), Bumi Armada, Swiber, Solstad, Hornbeck and Seacor etc. 

High maintenance of vessels 

POSH vessels are generally more high end with more complicated equipment compared to Players like Vallianz, Swissco or Marco Polo etc. Equipment maintenance, spares, docking, repairs are all very expensive. Personally, I knew that POSH does not perform well in cost management compared to the smaller owner-driven companies, who knows how to keep their cost very low. Being big means economy of scale, but it also means very high risk when the market conditions are unfavorable and vessels off-hire. 

Problems in Mexico

The OSA fraud in Mexico, will have detrimental effect on POSH, since the shareholders of OSA is also shareholder of GOSH - a JV company where POSH owns significant interest. GOSH had chartered vessels to OSA which in turn chartered the vessels to PEMEX - state owned Oil company in Mexico. Due to the fraud related to Citibank, OSA business had been frozen. This will have a huge impact on GOSH, hence POSH. Therefore POSH had made allowance of US$8.2 million for bad debts. Moreover, POSH also granted a loan (of which the outstanding amount as at December 31, 2013 was US$109.8 million) to GOSH for the acquisition, modification and mobilisation of the six vessels of GOSH which have been chartered to OSA. The terms of loan were made under unfavorable bank conditions in Mexico.

Conclusion

Highly valued, potentially more debts coming, intense competition, problems in Mexico.......Not a good buy!


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