The total purchase price for the Hulls is USD 41 million, to be rendered as a seller’s credit. Sevan will grant an additional loan of USD 10 million to be applied by Logitel Offshore towards its first milestone payment regarding hull number 4 to the yard which will complete the Hulls as high-end accommodation units (“FAUs”). The total USD 51 million credit is structured as a bullet loan, with a 3 per cent coupon, repayable within 24 – 36 months. The loan can be converted by Sevan into shares in Logitel Offshore. Upon sale of the Hulls, Sevan will be released from substantially all accrued, contingent and future liabilities related to the Hulls. The transaction remains subject to certain customary closing conditions.
Logitel Offshore is a stand-alone company established in cooperation with Sevan for the purpose of promoting floating accommodation units based on the Sevan design. 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. As part hereof, Arne Smedal, co-founder of Sevan and vice chairperson of its Board of Directors, 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. Thus, Sevan 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 with approximately USD 4.5 million per year. In connection with the organizational changes, a restructuring charge (including relevant severance benefits as per existing contracts) of approximately USD 3 million will be incurred in 2013.
Sale of the Hulls
The purchase price, USD 41 million in total, equals the book value of the Hulls as of 31 December 2012. An estimated total amount of USD 11 million in liabilities will be reversed through this transaction, leading to an estimated positive effect of USD 11 million in Sevan’s Q2 2013 numbers. In addition, the USD 20 million potential VAT and customs exposure in China stated in the Q4 2012 report in connection with the write-downs of the book value of the Hulls, is eliminated, together with potential liabilities going forward 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 USD 5 million for each of the Hulls, payable 6 months after commencement of any charter for the respective units. A license fee of USD 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 USD 51 million loan into shares in Logitel Offshore, Sevan’s ownership interest following the conversion will be virtually 100% pre 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% 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.”