Turquoise Offshore, a special purpose vehicle incorporated by Jasper Investments, is to enter into the share purchase agreement, and the sellers are Primepoint Holdings and Neptune CEO Idar Iversen. Primepoint is an investment company controlled by Iversen. Jasper Investments, meanwhile, is a company that invests in growth enterprises in Asia, and it, in turn is 45%-owned by Ashmore Investment, a leading London-based emerging market specialist.
Ironically, the deal brings Iversen full circle. Earlier this year, he structured a management buy-out to acquire the 35% stake in Neptune held by Scandinavian private equity fund Sector. The transaction allowed a group of investors, led by Iversen, to increase their ownership in the company from 10.7% to 55.4%. Merrill Lynch advised Iversen on the deal, which was achieved by way of a highly structured instrument called collateralised equity-leveraged loan securities (CELLS).
But four hedge funds, who collectively owned 39% of Neptune, filed legal proceedings citing that the deal and its structure were not in the best interests of the company. In July, a Cyprus court ruling upheld the CELLS, but the case is now pending in Singapore courts.
This latest transaction nullifies the earlier CELLS transaction. Presumably, minority shareholders are supportive of this deal, since buyers Ashmore and Jasper are expected to have consulted all shareholders before proceeding. However, no confirmation of this could be obtained.
On the Norwegian over-the-counter exchange, where Neptune is currently listed, a general offer to minority shareholders is not precipitated by a change of control. However, the share purchase agreement contains title and operational warranties, including warranties on the litigation proceedings brought by the minority shareholders. The assets have reportedly been sold, therefore, with free and clear title.
The deal also resolves NeptuneÆs pressing funding concerns. The company has reportedly experienced substantial difficulties in refinancing its debt due to the ongoing litigation. This latest acquisition will now facilitate that process.
ôIversen has now sold the shares to a party whom he presumably feels is best suited to take Neptune forward,ö says one market observer. Iversen will remain in a senior management role within the company and is expected to head a business development unit of the Neptune Group (Neptune Marine Oil and Gas, and its subsidiaries) to expand the existing fleet of deepwater drilling vessels, according to the Singapore filing.
The GroupÆs assets currently consist of two drill-ships, the Neptune Discoverer and the Neptune Explorer, which were both acquired in 2005 and which are now refurbished to optimal condition. RS Platou Offshore, an international ship valuer, has appraised the fair market value of the two drill-ships in the range of $230 million to $260 million for the Discoverer, and $340 million to $370 million for the Explorer as of October 2007.
The aggregate consideration for the sale shares, which represent 55.4% of the issued equity, amounts to $198.5 million. Debt on the books includes $125 million of secured floating-rate notes and $30 million of subordinated unsecured notes, all currently in default. Neptune has negotiated a $220 million debt facility to repay the notes in default, and to fund working capital requirements. This suggests that, on a firm value basis, the deal has been transacted at $578 million, which is roughly in line with RS PlatouÆs valuation.
The Neptune Group specialises in acquiring and refurbishing low-cost offshore drilling rigs with modern drilling equipment. These are then contracted out to oil and gas exploration and production companies, allowing for faster delivery time, lower capital cost and increased level of customisation over newly built offshore drilling rigs.
Jasper expects Neptune to provide long-term, regular and predictable revenues: the Neptune Group has a four-year contract with the Venezuelan state oil company Petroleos de Venezuela for the Discoverer. The Explorer, meanwhile, is due to enter service under a three-year contract with Reliance Industries, IndiaÆs largest private sector company. The ship is still undergoing refurbishment works in Singapore, and is expected to sail to India by year end.
ôPrimepointÆs key objectives for the transaction included certainty of closing and timely execution,ö states Jasper in its filing to the Singapore Exchange. It is fair to conclude, perhaps, that the winning bidder was selected not only on price considerations. JasperÆs ability to put money on the table and forgo the type of assurances and conditions stipulated by other bidders would also have played a key role.
The March CELLS deal, arranged by Merrill Lynch and in which the investment bank participated, was an example of the highly structured deals which investment banks now offer their clients. The aftermath was a costly lesson for all involved and a timely reminder that, in Asia as elsewhere, higher return deals are also fraught with higher risks.
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