Posted by: donmihaihai | August 23, 2009

Do a Swiber

There is an article in The Edge Singapore noting that C2O Holdings is turning into an offshore play just like Ezion or Falcon Energy Group(WTF, I din even know Falcon Energy is another offshore play). What about C2O share price? From the look of it, it surge from around $0.1 to $0.535 before any movement of capital. Interesting, but this is just the right move, and I call it — “Do a Swiber”.

Company X ROE for FY2005, FY2006, FY2007, FY2008 and 1H2009 were 38%, 25%, 28%, 19% and 11% respectively. How do company X managed to grow it equity 42.5X from $6.8M to $289M in 4.5 years? Let do some math, company X equity will stood at $15.5M at 1H2009 if it retained all it earnings over 4.5 years. To increase from $15.5M to $289M in 4.5 years is what I call — Do a Swiber.

1) In FY2005, Company X earned $6.2M but equity increased by $9.6M from $6.8M to $16.4M. The other $2.8M? Company X rises $4.2M and paid dividends of US$1.2M.

2) FY2006, Company X earned $12.1M but equity increased by $32.6M to $49M. The other $20.5M was from issuing of equity.

3) FY2007, Company X earned $49.7M but equity increased by $128.5M. The other $78.8M was from issuing of equity.

4) FY2008, Company X earned $39.5M but equity increased by $29.5M to $207M. About $10M was knocked off from the equity due to movement in reserves and share buyback.

5) 1H2009, company X earned $31M but equity increased by $82M to $289M. Company X raising $51M in equity.

Beside FY2008, company X issued equity yearly and transform itself from a company with a net worth of “few millions” to over 1/4 billion of net worth. And Company X is Swiber. There is no secret here and it must be the common understanding among these players because the strategy being used by Swiber is not uquie, an old trick and is commonly being used by many OSV players here. So it is unfair to call it ” Do a Swiber” but I love it.

Before looking at the trick, one has to understand why it is common among OSV players.

1st of all, I don’t care whether it is a barge, AHTS, shallow water, deep water, subsea, construction vessel, drillship, rig or even an ECPIC as claimed by Swiber. Everything work in the same way, the company need to have the vessel either by owning it or chartered. And vessels are not cheap, they are capital intensive kind of business, capital must lay out 1st. No one can change the logic behind this. No one will say, “here is the money, go and buy a few vessels and completed this project for me, repay me after that.”

Here is the trick.

Now, if C2O wants to enter into this industry, what it need 1st? Capital. Something that company like these empty shells does not have. But there is share price, these are nice currency if being used correctly and at the right time. The 1st time is ensuring news is out, speculator play and share price surge. The higher the share price, the better because the company can get more with less, get capital and buy vessels. With that, it become a growth company, plan for more expansion, more news, issue more shares. This is exactly what I call do a Swiber. It will work and continue to work as long as the share price is high and the unlying fundamental of offshore industry remain strong.

What happen if it stops working? Without new capital, growth will stalled, valuation will drop back to earth. Now the company must back to old fashion way of getting capital — earn it.

Before I end, here is one of the reasons why I call it “Do a Swiber”

How our world was created

On 8 Nov 06, after months of preparation and hard work, Swiber made a sparkling debut on the Main Board of the Singapore Stock Exchange. We successfully placed out 94 million shares at S$0.355 each, raising total net proceeds of approximately S$30.97 million for our future expansion. On our first day of trading, our shares opened at S$0.550, and closed at S$0.505, 42% above our issue price. Based on our closing price, market capitalisation of Swiber was approximately S$186.34 million.

I am delighted to note that, since Swiber’s debut, out shares continued to trade strongly between a premiums of 42% to 193% over our IPO issue price. This reflects the policy of this board, to continue enhance shareholder’s confidence and share value, in our Company.

By Mr Raymond Goh

Executive Chairman and Chief Executive Officer.

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Responses

  1. gd observation!

    Swiber was split from Swissco in an IPO, but now swissco is selling more shares of swiber. Anyway, an independent director has voiced out against swissco before he resigned.

  2. Apt title…….I was curious about C2O and Falcon Energy as well and was reading the Article from the Edge.

    So it’s getting mighty crowded out there at sea with all the OSV players. Let’s see if there is enough business for all of them……haha.

  3. Can’t help to write something. It reminds me of internet bubble and the focus on “eyeballs”.

    A stock remains “investment grade” for as long as good stories (usually associated with growth) are spun out at a regular enough frequency, and with the right intensity. Creativity counts as well. Meanwhile investors will cherry away, flaunt their astuteness and exhibit a high degree of self esteem. Although some of the well-read ones heard of the Cinderella story, unfortunately, they are neither brave nor intelligent enough to know that they are Cinderella themselves.

    You get slap with shit on your face by telling them to watch the clock.

  4. cif5000,

    Yours comment is easily the best ever written on my blog. Thanks

  5. And I know someone who likes to fall prey to hype up growth stories from the list of companies he owned. 🙂 But I hate it that he sprouts Buffetesque speech. Can’t he be himself.


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