The Oceanteam Case

Advanced Corporate Finance

Group 13 Tommy Hofkamp, 2132052 Simon Palumbo, 2508424 Louis Swart, 2506603 11 October 2011

INTRODUCTION Oceanteam is an offshore services company operating on a global basis and is specialized in the provision of construction support vessels, construction barges, and burial and flexible lay equipment. The company services three markets: oil & gas, offshore renewables, and high voltage submarine power interconnectors. The company was incorporates in October 2005, in Bergen Norway. In February 2007 Oceanteam got listed on the Oslo Stock Exchange (OBX). Companies similar to Oceanteam often go to the OBX for their listing, this stock exchange seem to be attractive for the offshore and transportation markets. Since their listing Oceanteam has enjoyed a period of growth, securing a series of contracts with clients on a global level. In 2008 Oceanteam has a fleet existing of two CSVs (construction support vessels) North Ocean 100 series, two fast support vessels, a cable installation and maintenance barge, a 7000 tonnes capacity lay spread, work class ROVs and a pool of installation and burial equipment. Two other CSVs are currently being built in Vigo, Spain. The CSV NO 103 will be available for service late July 2009, while the CSV BO 104 (50% owned by Groupe Bourbon) will be delivered early 2010. There are three further options for building CSVs. In the beginning of 2009 the company had to change its strategy. Oceanteam decided to reduce its contracting activities and restructure the company as a result of increasing losses in its contracting business. Since early 2009 the companys main focus in on the provision of construction support vessels, barges, equipment and engineering services. The company already transferred some operating projects to other organizations and the company plans to continue this process. As a consequence the operating risk will be reduced and the company can restructure its organization and finances. The working capital and cash balance of Oceanteam were unsatisfactorily low at 31 December 2008 and have reduced even further since that date. In March 2009 Oceanteam missed an interest payment on the bond loan. As per 31 March 2009, the company is in breach with several covenants on its loan agreements. Since the missing of this interest payment the share price collapsed. A poor liquidity situation and a big delay in vendor payments is clearly a huge risk to default. In the last week of April the company announced that Oceanteam is in need of a refinancing, including raising 30 million of new liquidity. On the longer term Oceanteam will continue investing in vessels and equipment; focusing on the provision of construction support vessels, work class ROVs, burial and lay equipment.

VALUATION OCEANTEAM AFTER RESTRUCTURING To revalue the company Oceanteam, we have made the following assumptions for the restructure. Oceanteam will exit the contracting business, which will give a claim of 20 million as a result of leaving this business. The company will sell the CSV NO 103, providing 25 million of liquidity. The three CSVs remaining in operations are BO 101 (50% owned), NO 102, and BO 104 (50% owned). These CSVs will generate a rental income of 50.000 a day, with a daily costs of 15.000. These will be our only revenues. For the costs, we add an assumption for some general costs. The economic lifetime of the vessels is 40 years. 2/3 of the time these vessels will be rent for the long-term, while 1/3 will be on spot market, the spot margins are two times higher, but the utilization is only 33%. WACC, FCF

Assets In order to determine what capital structure would fit this company the best, we will first calculate the assets on the balance sheet. We had to make some assumptions, which are listed below: All the assets

EQUITY/ TOTAL ASSETS RATIO The equity ratio determines the value that the shareholders of a company would receive in an event of liquidation. It can be calculated by dividing the equity by the total assets. To determine a decent equity ratio for a company such as Oceanteam, 27 peers are analyzed. The group of peers exists of 14 OBXlisted firms that have similar businesses as Oceanteam and of 13 non OBX-listed firms that have similarities with Oceanteam, all analyzed firms have a fleet of CSVs and are operating in oil & gas, transportation and/ or other offshore markets. Besides the equity ratio we also looked at the total debt/ EBITDA, the net debt (total debt cash & cash equivalents)/ EBITDA and the Interest Covarege ratio. Taking only the equity ratio into account would give a limited view on a firms structure. (All results are based on annual reports of 2008.)
Peer companies Stolt-Nielsen SA Odfjell Teco Maritim e ASA Belships Am erican Shipping Co Kongsberg Wilh. Wilhelm sen ASA Jinhui Shipping Ltd Golden Ocean Group Ltd Eitzen Maritim e Services ASA Green Reevers Norwegian Car Carriers ASA Star Reefers Inc Eitzen Chem ical ASA Concordia Maritim e Euronav Overseas Shipholding Group, Inc. Premuda SPA Torm A/S Camillo Eitzen & Co ASA Golar LNG IM Skaugen SE Diana Shipping Inc Eagle Bulk Shipping Inc Globus Maritim e LTD Malaysian Bulk Carriers Navios Maritime Holdings Average Equity ratio Total Debt/ EBITDA Net Debt/ EBITDA 42,7% 27,9% 61,6% 47,9% 14,1% 15,0% 39,9% 50,7% 17,4% 24,9% 37,4% 31,5% 64,0% 20,8% 56,4% 45,0% 55,2% 52,2% 38,6% 15,6% 20,9% 30,9% 73,4% 34,6% 42,8% 80,4% 65,6% 41,0% 8,74 6,52 3,46 2,88 21,97 6,61 11,25 1,97 3,72 13,56 8,03 6,58 4,22 9,11 9,35 2,19 2,63 4,51 6,10 7,02 9,72 3,99 1,25 6,98 2,35 2,09 5,61 6,39 8,57 5,84 3,46 0,03 19,40 4,68 9,05 1,67 3,49 12,46 7,38 5,91 3,88 8,73 9,15 1,88 1,98 4,50 5,60 6,43 9,43 2,99 0,97 6,90 1,41 -1,58 5,18 5,53

The averaged equity ratio of the peers is 41% (0,41), the total debt/ EBITDA is 6,39 on average and the average net debt/ EBITDA is 5,53. Besides these two ratios we also consider the Interest Coverage Ratio (EBITDA/Interest expenses). This ratio gives a good indication about the financial durability of the company. An acceptable ratio lies between three and five. Because the company is currently involved in a financial and operational

restructuring and its cash flows are not yet mature, we will look for the appropriate ratios in the year that the company will be mature, to get a financially stable company on the longer term. In our case, this means we will fit the target ratios to the year 2011, when the company will have three vessels out on the oceans. If we assess these ratios on our assets and EBITDA, this gives us the following results:

Our target Equity/Total Asset ratio will be 40%. This will give us a financially stable company from 2011 on with an Interest Coverage ratio of over 4, and a Net Debt to EBITDA ratio of XX

BONDHOLDERS/ SHAREHOLDERS CONFLICT Over the financial year of 2008 the equity ratio of Oceanteam was 26,2%. For the restructure is decided that bond loans will partially be converted into equity. Scandinavian law (less protection for shareholder) The future of the company is the one thing that connects the bond- and the shareholders. Both parties will financially benefit the most if a further existence of the company is possible. Therefore they will have to cooperate in order to achieve this further existence of the company. This means in this case, they will both have to pay for it.

RESTRUCTURING