Turnaround at Dubai-based Topaz takes hold
René Kofod-Olsen, the chief executive of the Dubai-based Topaz Energy and Marine, admits that with hindsight, the early part of 2011 was not the perfect time to consider an initial public offering by a Middle East company on the London stock market.
The Arab Spring convulsions were in full swing, while global markets had been rocked by the economic aftershocks of the Japanese earthquake and tsunami.
Topaz, a subsidiary of the Oman conglomerate Renaissance Holdings, had been planning a US$500 million London listing, but called it off at the last minute as doubts about investor appetite became apparent. Later that year, Topaz was rocked by the discovery of fraud at a Kazakh subsidiary and doubts about its strategic corporate structure.
Mr Kofod-Olsen, with 18 years of experience in the oil services business at the Danish group AP Moeller (part of the Maersk shipping empire), was called in later that year to help sort out the mess and set Topaz on a new strategic direction.
“As a group back then, Topaz had challenges,” he recalls.
With his third anniversary at Topaz approaching, Mr Kofod-Olsen has a chance to assess what has changed at the company since those dark days, and give some indication of future strategy. If the company decides to go again for an IPO in the future, it will be a very different corporate animal indeed.
Back in 2011, the company had three strategic divisions: oil and gas engineering, marine engineering and offshore service vessels (OSV), “but it was felt that structure needed to be revised. It was decided there were no synergies for them to be together. Owning a shipyard and running vessels are not the same business. Renaissance took the view that they didn’t have to be together,” says Mr Kofod-Olsen.
The loss-making energy engineering business was sold to the UK’s Interserve for about $45m. Renaissance still owns 100 per cent of marine engineering, but the unit is no longer part of the Topaz group.
“Topaz is now a pure play OSV company. OSV was always the lions’ share of the group business. I had a shipping background, so that’s why I was pulled in,” he says.
In March, he was able to show what the new-look company could do in financial terms. Revenue last year was up 22 per cent to $400m, while top-line earnings were ahead 17 per cent to $162m, a margin of about 40 per cent. Renaissance was grateful for a $20m dividend from a company that had caused so much concern at the parent’s Muscat headquarters.
The question of the IPO remains one of the priorities, especially with other energy services companies in the region, such as Abu Dhabi’s Gulf Marine Services, having successfully launched on the London market.
“This is a very capital-intensive business and we need the right instruments in debt and equity. We’ve now got our own board and corporate governance set-up under Renaissance. We will always consider a ‘liquidity event’ like an IPO, but it has to be at the right time and the right way. An IPO is definitely something we have in our armoury,” he says.
Explaining the new-look Topaz to potential London investors will be a far simpler task this time. The company’s “home market” is in the Middle East and the Caspian, which Mr Kofod-Olsen describes as the “core” of the business.
“We have big operations in Azerbaijan and Kazakhstan, as well as in the Russian sector of the Caspian and Turkmenistan. The biggest operation is in Azerbaijan, serving the development and production sector of their energy industry with customers like BP and Total, as well as local companies,” he explains.
The region sometimes has a reputation for being a difficult one in which to operate, but that is not Mr Kofod-Olsen’s experience.
“It is very stable, he says. “There might be political divergences between countries, but when it comes to the oil installations, it’s such a big part of GDP that it’s always protected and kept flowing. We’ve seen no fall out so far from Ukraine crisis.
“We have no Iranian business on the Gulf or Caspian sides. We wouldn’t rule out doing business there. but would wait until we’re able to work within international rules and regulations,” he says.
Other operations are in the UAE, Saudi Arabia and Qatar, as well as businesses in the UK’s North Sea and in West Africa, which he calls “strategic markets”.
Topaz will have other positives to tell international investors, such as the big spending on new vessels that has given it one of the newest fleets in the sector, about 100 ships; the contracting book of $1.2 billion agreed deals; and the healthy balance sheet.
Last year, Topaz got itself rated by Moody’s Investor Service and Standard & Poor’s, as a prelude to a $350m bond-raising exercise. “Our relationships have generally been with existing bankers but the bond helped us create a more balanced capital structure. We took the opportunity to consolidate the bank lenders down from 15 to nine,” says Mr Kofod-Olsen.
The company has learnt from the painful experience of being a fraud victim, but the financial effect was minimal, he says.
“It amounted to less than $3m and we recovered half of that. We’ve put measures in place in Kazakhstan, where the fraud took place, and now we have a good structure there. Throughout the company there are high individual and corporate ethical standards,” he says.
Follow us on Twitter @Ind_Insights
Published: May 17, 2014 04:00 AM