Aban to get a fillip from Singapore arm float

MUMBAI: Aban Offshore’s reported plans to come out with an initial public offer (IPO) for its Singapore subsidiary Aban Singapore Pte in Singapore is viewed favourably by analysts, as it would lead to unlocking the value of the parent.

Aban Offshore, India’s largest offshore company, had set up Aban Singapore as a special purpose vehicle to acquire Norwegian drilling company Sinvest. It had levered itself significantly to acquire the asset. According to reports, Aban Offshore is planning to dilute about 25% stake in Aban Singapore to reduce its debt burden, which is close to $2 billion.

“It is a positive step. It would help unlock value. And the IPO has anyway been in the pipeline for a few months now since its FCCB issue has stringent conversion clause. The IPO would be its most likely exit route,” said an analyst with a foreign brokerage, which has a buy call on the Aban Offshore stock. Aban Singapore had issued foreign currency convertible bonds representing 10.37% of its equity.

Although there is no independent confirmation, market buzz is that the IPO would have a 25% equity dilution. Hence if taken into account the 10.37% FCCB issue, the final dilution would be about 15%.

Aban Singapore, which contributes two thirds to the parent’s consolidated bottom line, has an estimated enterprise valuation of $4 billion with almost equal debt-to-equity component.

“We estimate replacement cost for Aban Singapore at around $2.5 billion. At enterprise value of $4 billion, EV/replacement cost of 1.6 would be at the higher end of global comparables.  Aban Singapore is expected to contribute close to 75% of consolidated profits. At today’s valuations, that would imply close to $2 billion market capitalisation for Aban Singapore on a pro rata basis. However, the Singapore subsidiary has newer, higher-end jack-ups and enjoys tax breaks. Valuations, therefore, can be on the higher side,” Sanjay Mookim and Prashant Gokhale, analysts with Cerdit Suisse said in a recent note to their clients.

Although the IPO would reduce earning per share estimates,-the move is still seen as positive since the sum-of-parts valuation of the parent would have a ready market reference. For the quarter ending Mar 2007, the first full quarter under Aban Offshore, Aban Singapore earned revenues of Rs 223 crore and a loss of Rs 134 crore.
Meanwhile, snalysts said Singapore, Norway, London and Dubai are the friendliest markets for shipping firms to raise money.

 “Singapore offers various tax incentives to shipping companies. There is a 10-year tax holiday in that market. Their procedures are also friendly when it comes to issues like off-chartering of ships,” said Surbhi Chawla, analyst, Angel Broking. Analysts said prospects for the company are bright, given the continued investment in exploration and production sector.

“We have earning visibility till 2009. The current E&P boom has less to do with oil prices and more to do with national oil companies going for energy security, and this we see sustaining. On rates, our sense is rents for jack-up rigs would be form to slight downward, firm for deep sea driller,” said an analyst.

In their recent report Saurabh Handa, Rahul Singh, and Garima Mishra of Citigroup have raised their target price on Aban Offshore to Rs 3,500. Goldman Sacs has a price target of Rs 3,450 on the stock.