The Pacific Radiance/Allianz deal has been going on for nearly five months now, since the troubled Singapore-based offshore player announced on Thursday, August 22, that it was in "advanced discussions" with debt funders for at least US$180 million of fresh loans, which it would use to pay off its bank debt in full, and merge with Allianz Marine Logistics Services Holding of the UAE, whose shareholders would invest US$180 million of fresh equity in the company, as per the announcement here.
The first news of this deal came before an update on the continuing deterioration in Pacific Radiance's financial situation. In November, the company announced (here) a loss for the third quarter of US$10 million dollars and negative equity of US$183 million, as its assets of US$437 million were dwarfed by US$620 million of liabilities.
Only US$274 million of the assets were actually vessels and equipment, the rest being over US$90 million, "due from associated companies" (which raises the questions of which associated companies, and why and for what, and when will they stump up the cash?) and a new asset of US$8 million for "right of use" (and again we would ask for use of what and why, and by whom was this valued?), and just US$20 million in cash.
Given that the balance sheet on September 30 showed that the company owed US$416 million of bank loans, to settle the amount in full for only US$180 million or less would involve a massive haircut for the Singapore institutions involved, over a sixty per cent loss.
This in turn would create an excellent precedent for the other troubled Singapore offshore companies Swiber, MEO, Ezion and Emas Offshore, which are also in default, and in some cases under judicial management. No doubt they would welcome the Singapore banks and their noteholders taking a massive write down on their debts, and forgiving the majority of their loans.
Why the banks would agree to do this for Pacific Radiance, but not the others, is not clear to me, given that DBS in particular has a loan portfolio that extends across the sector. However, in the first half results, here, Pacific Radiance reported that it had benefited from "forgiveness of a bank loan of $14.3 million," but it did not mention which institution had been more generous to Pacific Radiance than many other banks have been to other offshore clients.
The noteholders were told in September (see here) that they would get 15 per cent cash and warrants for new shares in the company, instead of full payment of their notes. Bad luck them.
Pacific Radiance is a business which looks like it has no future without that huge bank write off, or a massive debt-for-equity swap, of the sort which Bourbon and Tidewater underwent, and which would see the controlling Pang family wiped out.
Presumably, this harsh realisation was the reason why Pacific Radiance failed to secure fresh equity of S$120 million from the so-called "Popiah King," Sam Goi, a high net worth food tycoon, in May 2018.
Since then, Pacific Radiance has remained in a state of limbo, with its shares suspended on the Singapore stock exchange, and the company in default on the payment of S$120 million of bonds, which were due in 2019 but for which a payment moratorium has been granted by the court.
Its filings at the stock exchange show that it has continued to lose money up to the end of September, although it generate US$4 million of operating cash flow. This makes the deal with its Middle Eastern partner and an unnamed American money manager so mysterious. Where are the shareholders of Allianz finding the US$180 million of fresh equity?
Since the Allianz deal was first announced, I have struggled to understand how it will be funded, and what the balance sheet of the combined entity will look like. The August announcement on the equity injection stated that Allianz would be taking a 68 per cent stake in Pacific Radiance, and the new financier 15 per cent, but nothing concrete has been disclosed in public since, and the Singapore market is full of speculation on the size of the stake that the residual bondholders would receive, along with the new financier, the Pang family, and the management of Pacific Radiance, who might also be members of the Pang family, as we shall see.
The two companies have been close since Pacific Radiance formed a joint venture agreement with Allianz Offshore Middle East in May 2017. They created a new company in Singapore through which to cooperate on offshore vessel chartering and operations, Allianz Radiance.
Under the terms of the JV agreement, Crest Offshore held 51 per cent and Allianz Offshore a 49 per cent equity interest, making the JV an indirect subsidiary of Pacific Radiance. Allianz, with its main operational base in the UAE, is an actually a privately held company, so no information is forthcoming from its side on the deal.
Previous press coverage had revealed that Allianz was controlled by Ahmed Tarek Khalil Ali, a businessman in UAE, who owns a 74.44 per cent stake. Its founder Murali Krishna Krishna Kumar owns a 22.06 per cent stake, and other employees such as Friedrich Portner, Ramy Mohamed Rashad, John Garbutt, and Karim Hasabelnabi Mohamed hold small equity positions.
Ahmed Tarek Khalil Ali would hold more than 30 per cent of the enlarged voting share capital of Pacific Radiance upon the completion of the deal, which might mean under Singapore stock exchange rules that he would be required to make a general offer for all the shares be did not already own. That would be a further complication.
An extra and novel twist is the involvement of that staple from every business thriller, the rich American investor, who should preferably smoke a cigar and wear a designer suit.
In its most recent update about the restructuring process, released in September last year, Pacific Radiance indicated that it had selected a New York-based asset manager with approximately $32 billion in assets under its control, as financier for the deal.
They never named the manager, and no further updates about its involvement have since been provided – will this party finance Allianz's fresh equity, or the debt Pacific Radiance will issue to pay off the banks, or both?
As part of the original proposal discussed in September, Pacific Radiance said it would issue new company shares and/or warrants to the financier, who would then own up to 15 per cent of the company's enlarged share capital. So, the bank debt would be slashed, new equity would be invested, a fat new loan taken out, and the company would end up with a combined fleet of 180 vessels, allegedly.
Then, on January 3, Pacific Radiance announced the promotion of the controlling shareholder and Executive Chairman's son, James Pang, as acting Chief Executive Officer with immediate effect, and his brother Anthony was appointed as acting Chief Commercial Officer.
The company said that their appointments were, "in line with the company's long-term succession plan". If Allianz was really taking over the company, you would expect Allianz to be appointing the executive team.
Reports at the same time indicated that Pacific Radiance was still in the process of raising the US$180 million through the share placement with Allianz, and made it clear that the deal had not closed yet. US$180 million of new equity, and US$180 million of fresh debt is a huge ask for a company which is losing money, even if the banks and bondholders take a big haircut.
It was now reported that Pacific Radiance subsidiary Crest Offshore Marine, and Allianz Marine have set up another joint venture company in Singapore known as Pacific Allianz Holdings (PAH), with an initial capital of the princely sum of S$100, in which Crest holds 52 per cent equity interest, and Allianz the remaining 48 per cent stake.
The reports stated that Allianz Marine's fleet, "will come under PAH's control once the Pacific Radiance completes its fundraising, and regulatory approvals have been obtained". This would put Pacific Radiance and its controlling shareholders in charge of the whole of the two companies. Would the controlling shareholder after the recapitalisation be the Pang family, as now, the American asset manager, or Allianz's owner, or some combination of the three, as proposed in August?
The Allianz fleet listing is here and seems already to include a number of Crest vessels, confusingly, so it is not clear what Allianz is actually bringing to the deal.
It certainly doesn't look like the fleet listing of a company which would be capable of injecting US$180 million of new capital into Pacific Radiance on its own. Allianz has never publicly released its balance sheet, income statements or cash flow in the public domain, so anxious bondholders and Pacific Radiance minority shareholders and staff can have no idea what exactly their company will be buying into (or selling into), how the Allianz fleet is valued, or how Ahmed Tarek Khalil Ali came by the funds which he will use to invest in Pacific Radiance.
One report contained a cryptic reference to the issue of new equity being subject to a whitewash resolution by the company's shareholders who are independent of Allianz and the parties acting in concert with its owners.
This whitewash resolution is a shareholder's resolution that must be passed before a target company in a buyout situation can give financial assistance to the buyer of the target. It seemed to imply that Pacific Radiance's own cash is somehow being recycled into the equity issuance, which Allianz makes to recapitalise the company.
The Singapore stock exchange would also have to issue an approval-in-principle regarding the listing and issuance of the new shares. There would also have to be an independent valuation of both Pacific Radiance's assets and Allianz's assets. That might be interesting, given that many of the company's vessels are laid up, although Pacific Radiance has issued no public operational metrics on fleet utilisation for many quarters now and what its fleet is actually doing is not clear.
Three very smart people are tussling over the fate of Pacific Radiance – its Executive Chairman and Founder, Mr Pang, the savvy Founder of Allianz, Ahmed Tarek Khalil Ali, and this unidentified American financier who already manages billions of other people's money.
The banks will have to take a hit, the bondholders have been offered cash, which needs to be raised from somewhere, and they have been offered warrants in the company, which may be massively diluted when and if Allianz buys its 68 per cent.
We'll keep watching, but expect there to be further turns of the screw in the coming months. It has been five months since this process was first announced. Since then, information has been scant and the young Pang brothers have just been promoted to run Pacific Radiance in an acting capacity.
Pacific Radiance had only US$20 million in cash at the end of September. If this complicated restructuring can be pulled off, expect the other troubled Singaporean offshore companies to use it as a model. If Pacific Radiance can raise US$360 million in debt and equity, there must be hope for the whole sector. That is the "Big If".
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