PETALING JAYA – A planned merger of UMW Oil & Gas Corp Bhd (UMW-OG), Icon Offshore Bhd and Orkim Sdn Bhd to create an integrated service provider in the oil & gas industry has been called off due to significant capital requirements.
Ekuiti Nasional Brhd (Ekuinas), the largest shareholder of Icon Offshore and Orkim, said it arrived at the decision after considering the significant capital requirements of UMW-OG, which necessitates a far larger recapitalisation than initially envisaged.
“This, in turn, would have an adverse effect on the economics of the proposed transaction. In the meantime, we will support our investee companies, Icon and Orkim, in executing their strategies to grow their respective businesses in the pursuit of shareholder value creation. We would like to thank all the parties involved in the discussions for their time and effort, and we wish UMW-OG all the best in their recapitalisation exercise,” Ekuinas CEO Syed Yasir Arafat Syed Abd Kadir said in a statement yesterday.
UMW-OG said in a filing with the stock exchange that the decision has taken into account the need to have greater clarity on the industry consolidation framework and certainty of the industry environment before any such consolidation can be pursued.
“The company may, however, continue to explore opportunities to collaborate in the future once there is more certainty in the industry environment and consolidation framework as the board continues to believe that the creation of a major integrated oil & gas service provider is the right strategic approach for the longer term,” it added.
In a separate filing yesterday, UMW-OG proposed a rights issue with warrants and/or proposed subscription of new Islamic redeemable convertible preference shares to raise gross proceeds of RM1.82 billion.
Trading in UMW-OG and Icon shares was suspended yesterday pending the announcement. The counters closed at 69 sen and 38.5 sen on Wednesday respectively.
AmInvestment Bank had opined that the abortion of the deal will be value-enhancing for UMW-OG as the proposed acquisitions (together with the demerger from UMW) of Icon and Orkim at unjustified price-to-book value of 1 time and 3.6 times respectively versus UMW-OG’s 0.8 times.
Despite this, the demerger of UMW-OG from parent UMW Holdings Bhd is on track to be completed by July and is not conditional upon the three-party merger.
UMW president and group CEO Badrul Feisal Abdul Rahim (pix) expects a better outlook for UMW without the oil and gas unit.
Earlier at its EGM yesterday, UMW shareholders approved the proposed distribution of the entire shareholding of UMW in UMW-OG, on the basis of 1.03 UMW-OG shares for each share in UMW to the entitled shareholders of UMW by reducing the share capital of UMW by RM704.76 million, as well as the proposed capital reduction of UMW by RM89.72 million.
The demerger of UMW-OG will be done through the distribution-in-specie of all UMW’s 55.73% stake in UMW-OG in the form of bonus issue.
“By July we should be able to complete everything (demerger),” Badrul Feisal told reporters after UMW’s EGM here yesterday. He declined to comment on the troubled merger between UMW-OG, Icon Offshore and Orkim.
On the progressive sale of its other non-listed oil and gas assets, he said it is still going through the processes. It has sold 10 assets, with another 15-16 more to go. It is finalising the deals and is aiming to complete the disposals by this year.
“It’s realistically challenging to do them by this year and it may also move to next year. But the impairment will no longer be significant, because we’ve taken almost all the heed for 2016,” Badrul Feisal said, adding that any impairment will be minimal.
UMW is exiting the oil and gas business amid the low price environment and will refocus on its core businesses of automotive, equipment and manufacturing & engineering.