New Build Tender Rig Order/New Subsidiary of MMPCL
Ref: COR:MS/EL07024e/ms
19 October 2007
Subject: New Build Tender Rig Order and Newly Incorporated Subsidiary of Mermaid Maritime Public Company Limited
To: The President of the Stock Exchange of Thailand
Thoresen Thai Agencies Public Company Limited ("TTA") would like to confirm that Mermaid Kencana Rig 1 Pte. Ltd. ("MKR1"), a newly incorporated subsidiary of Mermaid Maritime Public Company Limited ("MMPCL") will enter into an agreement to build a new tender-assisted drilling rig with Kencana HL Sdn. Bhd. ("KNHL"), a wholly owned subsidiary of Kencana Petroleum Berhad ("KNPE"). The details of the new tender-assisted drilling rig and the newly incorporated subsidiary company are as follows:
1. Date of Transaction
On Friday, 19 October 2007, Mermaid Kencana Rig 1 Pte. Ltd. ("MKR1"), an indirect newly incorporated subsidiary of MMPCL, of which Mermaid Drilling (Singapore) Pte. Ltd. ("MDS") owns 75% of the equity and Kencana Petroleum Ventures Sdn. Bhd. ("KNPV") owns 25% of the equity, issued a letter of award and will be signing a contract with KNHL in Malaysia to design, construct, equip, and deliver a new tender-assisted drilling rig.The contract signing ceremony will be held on Monday, 22 October 2007.
2. The Parties Involved
| New Build Tender Rig Buyer: | Mermaid Kencana Rig 1 Pte. Ltd. |
| New Build Tender Rig Builder: | Kencana HL Sdn. Bhd. |
Relationship between New Build Tender Rig Buyer and New Build Tender Rig Builder:
Both KNHL and KNPV are companies which have the same major shareholder, namely KNPE, and are considered related persons.
3. General Characteristics of the Transaction/Details of the Acquired Asset:
KNHL has agreed to design, construct, and complete one new self-erected tender rig ("SETR") and derrick equipment set ("DES") (together, the "New Build Tender Rig"). The New Build Tender Rig is expected to be delivered around the 4th quarter of 2009. MKR1 is currently working with major regional clients on a long-term drilling contract and is expected to announce a commitment in the next few months.
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MDS, which is a wholly owned subsidiary of MMPCL, has agreed with KNPE to form a new subsidiary in Singapore to own the New Build Tender Rig. The details of the new subsidiary are explained in item 6.
4. Condition Precedent
The transaction is conditional upon (a) MKR1 securing debt finance for the transaction; and (b) KNHL issuing payment refund guarantees to MKR1 where required by MKR1 or its banks to secure its debt finance.5. Total Value of Consideration
The price for the New Build Tender Rig is USD 136,000,000 (United States Dollars One Hundred Thirty Six Million Only) which is equivalent to Baht 4,663,440,000 (Four Billion Six Hundred Sixty Three Million Four Hundred Forty Thousand) using a USD/THB exchange rate of 34.29. It comprises USD 91,000,000 (United States Dollars Ninety One Million Only) for the SETR and USD 45,000,000 (United States Dollars Forty Five Million) for the DES.Payment terms are as follows:
| Instalment |
|
| 1 | 15% of the SETR price will be paid on the execution of this contract |
| 2-11 | 75% of the total SETR price will be payable during the construction period, based on contract milestones. |
| 12 | 7.5% of the total SETR price will be payable upon delivery of the SETR |
| 13 | 2.5% of the total SETR price will be payable upon the expiry of the warranty period |
| Instalment |
|
| 1 | 15% of the total DES price will be paid on the execution of this contract |
| 2-7 | 75% of the total DES price will be payable during the construction period, based on contract milestones. |
| 8 | 5% of the total DES price will be payable upon delivery of the DES |
| 9 | 5% of the total DES price will be payable upon the expiry of the warranty period |
The contract also contains clauses for the exercise of options by MKR1 to order up to three (3) additional newbuild tender rigs from KNHL. TTA will subsequently report the exercise of options by MKR1 (if any) in accordance with the Rules, Procedures, and Disclosure of Information of the Stock Exchange of Thailand ("SET") in due course.
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6. Details of the New Subsidiary Company to own the New Build Tender Rig
On 19 October 2007, MDS established a new Singapore-incorporated company named Mermaid Kencana Rig 1 Pte. Ltd. ("MKR1") with an authorised share capital of USD 100 (United States Dollars One Hundred Only) and initial issued share capital of USD 100 (United States Dollars One Hundred Only) comprising 100 shares of USD 1 (United States Dollars One) each. The principal activity of MKR1 is to engage in drilling and drilling related services in the offshore oil and gas industry as the owner of the New Build Tender Rig. The share capital of MKR1 will subsequently increase over time as instalment payments are made through capital contributions by its shareholders.At the time of incorporation of MKR1, MDS is the sole shareholder, holding 100% equity in MKR1. However, pursuant to a shareholders agreement between MDS and KNPV in Malaysia, its shareholding structure will change to MDS owning 75% equity and KNPV owning 25% equity in MKR1.
The share capital of MKR1 will subsequently increase over time in line with the investment required for the ownership of the New Build Tender Rig and shall be allotted in accordance to the equity structure in the above proportions. The eventual issued and paid-up share capital of MKR1 is dependent on the source of funding for the New Build Tender Rig via equity and/or borrowings. Further capital increases in MKR1 by KNPV will require approval of the shareholders of KNPE. Any guarantees required by third parties from MDS and KNPV will also be provided in proportion to their shareholding structure in MKR1.
The Board of Directors of MKR1 will comprise three directors nominated by MDS and one director nominated by KNPV. Such Board will determine from time to time the capital expenditure and working capital requirements of MKR1.
The rationale for entering into the shareholders agreement with KNPV is to benefit from the reputation and goodwill of the KNPE group in the offshore oil and gas industry, to encourage mutual benefit in the construction and successful delivery of newbuild tender rigs, to develop synergies between the parties to better serve clients in drilling and drilling related services in the offshore oil and gas industry, and to have access to capital from the KNPE group. The shareholders' agreement is also scheduled to be signed at the signing ceremony on Monday, 22 October 2007 in Malaysia.
MKR1 will be the second company partially owned by KNPV. The first company is Kencana Mermaid Drilling Sdn. Bhd. ("KMD") in Malaysia. KMD was incorporated on 26 September 2007 and will provide services as a licensed marketing company for offshore drilling and drilling-related services to the offshore oil and gas industry in Malaysia. KMD is also co-owned by MDS and KNPV.
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7. Information about MDS, KNPV, and KNHL
MDS was incorporated in Singapore on 27 February 2007 with an initial issued share capital of USD 1 (one) divided into 1 (one) ordinary share with a par value of USD 1 (one) as a wholly owned subsidiary of MMPCL. MDS will act as the holding company for MMPCL's foreign partnerships and investments in drilling and drilling-related services in the oil and gas industry.KNPV was incorporated in Malaysia on 5 September 2007 with an authorised share capital of RM 1,000,000 divided into 1,000,000 ordinary shares of RM 1.00 each and a paid up share capital of RM 2 divided into 2 ordinary shares of RM 1.00 each. KNPV is a wholly-owned subsidiary of KNPE. KNPV's principal activities are investment holding, management, and related services in the oil and gas industry.
KNHL was incorporated in Malaysia on 9 April 1982 with a paid up share capital of RM 60,000,000 divided into 60,000,000 ordinary shares of RM 1.00 each. KNHL is a wholly-owned subsidiary of KNPE. KNHL's principal activities are engineering and fabrication of offshore and onshore facilities in the oil and gas industry.
KNPE, through its wholly-owned subsidiary KNHL, is one of seven offshore major fabrication licence holders issued by Petroliam Nasional Berhad ("Petronas"). The KNPE group of companies has become one of the fastest growing integrated engineering and fabrication solutions providers for oil and gas companies in Malaysia. KNPE is listed on the Malaysia Exchange.
8. Size of Transactions
The size of transactions which include the investment in MKR1 equals 18.41% of the total assets of TTA and its subsidiaries as of 30 June 2007 (the total assets of TTA and its subsidiaries as of 30 June 2007 amounted to Baht 25,327,855,829).The transaction is considered as a connected transaction in accordance with the Notification of the Stock Exchange of Thailand regarding Disclosures of Information of Listed Companies concerning the Connected Transactions because MKR1 will sign a contract with KNHL, which is a subsidiary of KNPE, (also the parent company of KNPV). However, since the transaction is considered a normal business transaction under normal trading conditions of MKR1, it can seek only approval from the Board of Directors.
When these transactions are included with other asset acquisition transactions in the past six months, there has been a 35.29% increase in the total assets of TTA and its subsidiaries as of 30 June 2007. Regulations consider these acquisitions as Class 2 transactions in accordance with the Rules, Procedures, and Disclosure of Information of the Stock Exchange of Thailand ("SET") regarding the Acquisition and Disposition of
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Assets of Listed Companies. TTA is required to disclose the information immediately and send a circulation to shareholders within 21 days from the date of disclosure to the SET.
9. Basis Used to Determine the Value of Consideration
The Consideration was arrived based on negotiations on a willing-buyer willing-seller basis and is within the fair market value range as of 18 October 2007 as assessed by R.S. Platou Offshore A.S. as valuers, based on current market comparables between willing buyers and willing sellers, as well as the perceived market levels at the relevant time.10.Benefit Expected to be Generated from the Transaction
MMPCL's principal activities include drilling and sub-sea engineering services for the offshore oil and gas industry. The acquisition is part of MMPCL's commitment to expand the size of its rig fleet in order to enhance its offshore oil and gas support services and capabilities as well as to achieve greater economies of scale. The New Build Tender Rig will also enhance Mermaid's market position in terms of the modernisation of its fleet.MMPCL currently owns and operates a fleet comprising two tender rigs and four owned and two chartered sub-sea engineering vessels.
11.Source of Funds
MMPCL intends to fund its portion of the Consideration through a combination of proceeds raised from MMPCL's recent initial public offering and borrowings. MMPCL's portion of the Consideration is limited to 75% based on the equity proportion it owns in MKR1.12.Board of Directors' Opinions For The Transactions
The Board of Directors of TTA considers that these terms and conditions are fair and reasonable in the current market situation and in TTA's and MMPCL's best interests. MMPLC believes that it is an opportune time to acquire the New Build Tender Rig. Furthermore, the New Build Tender Rig will enhance MMPCL's market position in terms of modern tender rigs.
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13.Audit Committee/or Directors' Opinions, Which Are Different From The Board of Directors
None
Yours faithfully,
Thoresen Thai Agencies Public Company Limited
| _____________________________ M.L. Chandchutha Chandratat Managing Director | _____________________________ Ms. Nuch Kalyawongsa Director, Group Finance/Accounting |
Note:
Disclosure of Information by MMPCL on the Singapore Exchange ("SGX-ST") can be viewed at: