MAY 24, 2013 — Two 60 m diameter cylindrical hulls that were originally intended to become FPSO's look set to be completed as floating offshore accommodation units (FAUs), following some somewhat intricate corporate maneuverings.
Oslo-listed cylindrical floater specialist Sevan Marine ASA said today that it has entered into an agreement to sell the semi-completed Sevan hulls number 4 and 5 on an "as-is, where-is" basis to Logitel Offshore, a stand-alone company established in cooperation with Sevan for the purpose of promoting floating accommodation units based on the Sevan design.
The hulls, which are currently located at the Cosco Nantong Shipyard in China, are being sold for a total purchase price of $41 million, to be rendered as a seller's credit. Sevan will loan Logitel Offshore an additional $10 million to be applied towards the first milestone payment for hull number 4 to the shipyard that is to complete both hulls as high-end accommodation units ("FAUs"). The total $51 million credit is structured as a bullet loan, with a 3 per cent coupon, repayable within 24 to 36 months. The loan can be converted by Sevan into shares in Logitel Offshore. On sale of the hulls, Sevan says it will be released from substantially all accrued, contingent and future liabilities related to them. The transaction remains subject to certain customary closing conditions.
Sevan says that Logitel Offshore has entered into agreements with a reputable yard for the construction of one plus one FAUs based on the hulls, with options for two additional units. These agreements are non-recourse to Sevan. Work on hull number 4 is due to commence shortly, while work on hull number 5 is expected to commence before year end 2013, subject to certain initial milestone payments being made.
While focusing on the core FPSO/FSO segment, Sevan has also been seeking to develop new markets for the Sevan design. Arne Smedal, co-founder of Sevan and vice chairperson of its Board, has established CeFront Technology AS in cooperation with Sevan. Sevan and CeFront have entered into a cooperation agreement regarding, among other things, the development of new applications and projects based on the Sevan design. Sevan says it has thus has secured continued and preferential access to know-how and experience in addition to its own in-house resources, while retaining all patents and other intellectual property rights pertaining to the Sevan technology.
As a result of these two transactions, Sevan estimates that the operating expenses will be reduced by approximately $4.5 million per year. In connection with the organizational changes, a restructuring charge (including relevant severance benefits as per existing contracts) of approximately $3 million will be incurred in 2013.
Sale of the Hulls
The purchase price, $41 million in total, equals the book value of the hulls as of December 31, 2012. An estimated total amount of $11 million in liabilities will be reversed through this transaction, leading to an estimated positive effect of $11 million in Sevan's Q2 2013 numbers. In addition, a potential $20 million tax and customs exposure in China in connection with the write-downs of the book value of the hulls, is eliminated, along with potential future liabilities related to continuing maintenance, storage and insurance, including the costs and risks associated with moving the Hulls to a different storage area.
The transaction is expected to be completed during Q2 2013.
Sevan will earn a license fee of $5 million for each of the hulls, payable six months after commencement of any charter for the respective units. A license fee of $10 million has been agreed for any future FAU based on the Sevan design. Logitel Offshore will hold exclusive rights for the use of the Sevan design within the accommodation and logistics market for an initial period, with options to extend under certain conditions. Logitel Offshore will also enter into a service agreement with Sevan in connection with the construction of the FAUs to procure the necessary support from Sevan.
If Sevan elects to convert the $51 million loan into shares in Logitel Offshore, Sevan's ownership interest following the conversion will be virtually 100 percent prior to any equity issues. The final ownership share will depend on the amount of required new equity to be raised, subscription price, company development and access to long term debt. Logitel Offshore is currently reviewing various financing alternatives.
The new company CeFront
CeFront will be a company focusing on developing technology, design and projects for Sevan and other customers. Key owners and employees in CeFront are Arne Smedal and Kåre Syvertsen, who bring with them a wealth of experience and expertise as co-founders of inter alia Sevan, MCG and APL. In addition to an annual, declining retainer to CeFront, the cooperation agreement provides for incentives for CeFront to enhance development opportunities for the Sevan technology outside of Sevan's core business. This can, potentially, bring future service income and license fees to Sevan from new markets and applications outside of Sevan's core FPSO/FSO segment which may be developed by CeFront, as well as the option for Sevan to co-invest in such new projects.
The new company Logitel Offshore
Logitel Offshore, a Singapore based company and 100 percent owned by CeFront, has entered into agreements for the construction of two FAUs based on the Hulls and Sevan design. The FAUs have been developed in close cooperation with Sevan and the yard, and will be North Sea compliant and equipped with DP3 and mooring systems.
Carl Lieungh, Sevan's CEO, stated: "We are pleased with these transactions, which will provide Sevan with a new line of license business going forward, while at the same time removing liabilities associated with the hulls. This helps strengthening our balance sheet. Also, the convertible loan gives us an attractive option to participate in a tightening accommodation market, with an increasing demand side illustrated by recent contracts. We have actively marketed the hulls for FPSO projects in recent years, but for various reasons it has proven difficult to convert keen customer interest into firm contracts. The Logitel transaction reduces down side risk in Sevan while increasing the upside potential and free cash flow, and brings with it the option to become a Logitel shareholder. We look forward to working with CeFront, while at the same time focusing our resources on the opportunities in the FPSO/FSO segment."
Arne Smedal, CEO of CeFront and Logitel Offshore, stated: "The new structure will release resources to focus on developing new opportunities in both Sevan and CeFront. CeFront gives us the opportunity to work on miscellaneous projects for a wider group of customers, while at the same time maintaining the best of relations with Sevan. Through Logitel Offshore, we look forward to building a company with a new fleet within the accommodation and offshore logistics market based on Sevan's design. We are also already looking at other potential applications and markets for the Sevan design, which is a commercially and technically competitive solution to semi-submersible platforms in various offshore markets."