CATALIST-LISTED offshore and marine engineering firm, EMS Energy, on Thursday said it has executed a definitive sale and purchase agreement to acquire a 52.76 per cent stake in Vietnamese shipyard, Nosco Shipyard Joint Stock Company.
With this deal, the company intends to diversify into the new business of ship repair, module construction and shipbuilding. As this represents a diversification of its existing business and a change in the group's risk profile, EMS intends to seek shareholders' approval for the proposed diversification at an extraordinary general meeting (EGM) to be convened, it said.
In particular, the board believes that the proposed acquisition would allow it to acquire a new business that could "potentially resolve its financial and business viability issues". After taking into consideration the target's fully operational shipyard with immediate cash flow, a new experienced management team appointed in March 2019, and the market demand for ship repairing, EMS is of the view that the target can contribute to its revenue and profits, the company said.
EMS intends to purchase about 27.9 million shares in Nosco Shipyard from Vietnamese construction firm, Son Truong Co, and NVS Holdings - a company controlled by EMS chairman and chief executive, Ting Teck Jin.
In addition, EMS will also be commissioning an independent business valuer to conduct an equity valuation on the 52.76 per cent interest of the target. The indicative amount payable by EMS is represented by a 22 per cent discount to the valuation. Where a range is provided, the simple average of the highest and lowest valuation will be taken, the company said.
The amount will be satisfied by the allotment of new EMS shares at an issue price of 0.15 Singapore cent, or as adjusted according to any share consolidations approved at the firm's EGM. This price represents a 93.2 per cent discount to the last traded price of the company's shares of 2.2 Singapore cents, before the counter was suspended on Sept 26, 2016.
In a regulatory filing on Thursday, EMS noted that the financial effects of the acquisition cannot be determined as of yet, since the actual number of securities to be issued as consideration can only be determined following the independent equity valuation.
Nonetheless, in January this year, the group indicated that it expected to issue 11.06 billion new EMS shares worth S$16.6 million for the stake in Nosco Shipyard.
As at end December 2018, the net asset value of the target company was about 400.2 billion Vietnamese dong (S$23.3 million), with net tangible assets of the same amount.
As shares in EMS have been suspended, the company is required to submit a proposal to the Singapore Exchange Securities Trading (SGX-ST) with a view to resume trading under Catalist rules. SGX-ST had previously granted the firm two extensions to enter into binding agreements with investors to address issues pertaining to its financial and business viability, and to demonstrate its ability to operate as a going concern.
On March 8 this year, SGX-ST granted EMS a further extension till June 30, 2019 for it to submit a resumption proposal. No further extensions will be granted.
Separately under the agreement, each of the vendors have agreed to subject the new EMS shares to be allocated, to a moratorium of no less than two years upon completion of the acquisition. Mr Ting has also agreed to subject all his shares in NVS Holdings to a moratorium of the same duration.
Among other things, completion of the acquisition is subject to shareholders' approval, as well as approval from SGX-ST for the allotment of the new shares. It is also conditional upon EMS undertaking due diligence on the target and it being satisfied with the results, as well as the independent business valuation report being in compliance with Catalist rules and "reasonably acceptable" to the company.