KUALA LUMPUR, April 7 ― On March 14, Perisai — a 26 per cent associate of Ezra — announced it has agreed to buy an Anchor Handling Tug (AHT) named Lewek Robin for US$7 million (RM23 million).

Perisai, via its 51 per-cent-owned indirect subsidiary Intan Offshore (Labuan) Ltd, is purchasing the AHT from Lewek Robin Shipping Pte Ltd, which is a wholly-owned subsidiary of Ezra.

 The remaining 49 per cent stake in Intan Offshore (Labuan) Ltd is indirectly owned by Ezra.

 So, that makes Intan Offshore (Labuan) Ltd a 49 per-cent-owned associate of Ezra.

 In other words, the deal involves a subsidiary and two associates of Ezra.

 To pay US$7 million to Ezra for Lewek Robin, Perisai has borrowed US$4.55 million in the form of a seven-year loan to pay cash upfront.

 The remaining US$2.45 million is payable after it has repaid the loan, in other words, after seven years.

 Ezra has agreed not to charge any interest on the outstanding US$2.45 million instalment.

 Apparently, the terms of the sale are favourable to Perisai.

 But there’s more.

1. Why is it acquiring Lewek Robin from Ezra Holdings Ltd at a loss?

Emas Offshore (M) Sdn Bhd, a wholly-owned subsidiary of Ezra, has agreed to lease back Lewek Robin on charter for seven years at US$2,600 (RM8,527) per day.

So, on the one hand, Ezra has given an interest-free loan of US$2.45 mln to Perisai for seven years.

And on the other, it will pay Perisai cash for seven years at US$2,600 per day of charter.

But the announcement didn't reveal the duration of the charter in each of the next seven years.

Even if the charter duration is 365 days for each of the seven years, Lewek Robin would earn just US$6.64 mln.

When compared to the acquisition price of US$7 mln and the interest cost on the US$4.55 mln loan, Perisai would make a significant loss on the acquisition.

Ezra Holdings Ltd bought Lewek Robin in 2007.

So, the vessel will be 14 years old by the end of the charter ― apparently, that's quite an age for such a vessel.

That makes us doubt the future earnings capability of Lewek Robin after the charter contract with Ezra ends some time in 2021

Moreover, one cannot rule out maintenance costs during the tenure of charter agreement with Ezra.

Therefore we wonder if Perisai is paying more than it would earn from Lewek Robin.

Or, are we missing something here?

2. Why did it not acquire a controlling stake in Larizz Energy Services Sdn Bhd?

Perisai Petroleum Teknologi Bhd has incorporated an associate company Larizz Energy Services Sdn Bhd on March 19.

In its announcement, Perisai said "The incorporation of Larizz Energy ("Incorporation") is in furtherance to the future strategic plans of the Company".

However, the announcement didn't reveal what were these "future strategic plans" that Perisai aims to achieve through a 40 per cent stake in Larizz Energy.

Perisai owns a 40 per cent stake in Larizz Energy whereas the remaining 60 per cent stake is owned by Perisai's Managing Director Zainol Izzet Bin Mohamed Ishak.

Zainol Izzet Bin Mohamed Ishak also owns a 7.05 per cent stake in Perisai (refer page 150 of its FY12 AR).

Larizz Energy is in the business of upstream oil and gas services and other services in the oil and gas industry.

Perisai has appointed Dato' Dr Mohamed Ariffin Bin Hj Aton as its nominee director on Larizz Energy's Board.

Datuk' Dr Mohamed Ariffin Bin Hj Aton is the Non-Independent Non-Executive Chairman of Perisai.

On May 10 last year, he was re-designated as a non-independent director, in line with the recommendation of the Malaysian Code of Corporate Governance 2012 that the tenure of an independent director should not exceed a cumulative term of nine years (refer page 38 of FY12 AR).

Zainol Izzet Bin Mohamed Ishak is the only other director of Larizz Energy.

Larizz Energy has an authorised share capital of RM400,000 which is divided into 400,000 shares of RM1 each.

So far, only 100,000 shares of RM1 each has been issued and fully paid-up.

Of that, Perisai owns 40,000 shares (a 40 per cent stake) while its Managing Director owns the remaining 60,000 shares (a percent stake).

Therefore that makes us wonder why Perisai couldn't incorporate Larizz Energy as a wholly-owned subsidiary or acquire a controlling stake in it.

For what reasons did it agree to cede a majority control to its Managing Director?

3. Why did it not appoint an independent director as its nominee of Larizz Energy's Board?

As already mentioned, Datuk' Dr Mohamed Ariffin Bin Hj Aton ― Perisai's nominee director on Larizz Energy's Board ― is a non-independent director of Perisai.

The only other director of Larizz Energy is Perisai's Managing Director Zainol Izzet Bin Mohamed Ishak.

Any reasonable investor would argue that Perisai should have appointed an independent director as it nominee to protect its investment in Larizz Energy

Then why did it not do so?

4. How much would it invest in and profit from Larizz Energy?

Also, it didn't disclose how much more Perisai would invest in a company controlled by its Managing Director.

We have sent these questions to the company (corporate@perisai.biz) to invite them for an on-camera interview, and/or seek their written response.

So far, we have not had a reply (which is why you are seeing this message). ― Investor Central

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