Gulf Marine Services hires Evercore to advise on capital raise; Seafox lies in wait following stinging critique

11 April 2019

Gulf Marine Services hires Evercore to advise on capital raise; Seafox lies in wait following stinging critique

 

11 April 2019 | 17:15 BST

 

Gulf Marine Services Plc (GMS), a stressed UAE-based offshore service vessel company, has hired investment bank Evercore as a financial advisor, said three sources familiar with the situation. The boutique investment bank is assisting GMS in its plans for a capital raise, said the second and third sources.

 

The London-listed firm remains locked in a war of words with minority shareholder Seafox International Limited (Seafox) and recently admitted it will likely need to seek loan covenant amendments — again — in 2019.

 

The capital raise may take the form of a junior debt piece that recapitalises the business, noted the third source, who added a deal could come to market imminently.

 

In January, fellow offshore service vessel company Seafox acquired a 13.7% stake in GMS, and promptly requisitioned a general meeting at which it called for the replacement of various board members. In a no-holds-barred broadside against GMS in March, Seafox urged the company to overhaul its board, cut costs and put a sustainable capital structure in place.

 

In relation to excessive costs at GMS, the Seafox critique stated: “We believe that GMS’s inability to understand the new reality is similar to an investment bank still operating with a pre-2008 financial crisis cost structure.” Seafox goes on to claim core operating expenses should be cut by 15% and catering costs by 25%.

 

For its part, GMS rejected Seafox’s allegations and has outlined a three pronged “repositioning plan” under which it plans to strengthen corporate governance and cut USD 6m of costs a year by 2020.

 

Finally, the company is “engaging with its banking syndicate to address both the short-term covenant compliance challenges as well as to deliver a refinancing solution that establishes an appropriate long-term sustainable capital structure,” according to its FY18 results.

 

In mid-February, following the acquisition of the stake by Seafox, the chairman of GMS’s board, Simon Heale, announced his resignation. GMS’s CFO, John Brown, resigned last October, with replacement Stuart Jackson expected to join the company in July 2019. A new non-executive director, Mo Bississo, has also been appointed to the GMS board.

 

Around the same time that Seafox called a general meeting seeking board appointments, various other minority shareholders, led by Ithmar Capital Partnersmade a similar request. A general meeting was held on 18 March, at which Seafox’s proposed board appointments were rejected (Ithmar withdrew its proposed board appointments before the meeting).

 

As exclusively reported by Debtwire, Seafox itself faces financial challenges — it hired investment bank Houlihan Lokey as financial advisor last year.

 

Covenant crisis

 

GMS reported total debt of USD 411.5m as of end-December 2018. This includes a USD 391.5m term loan maturing in December 2023, of which some USD 20.3m is due for repayment in 2019. The term facility is secured by mortgages over various GMS vessels with a net book value of USD 679.5m as of end-December 2018.

 

The company has also drawn USD 20m of a December 2023-maturing USD 50m revolving credit facility (RCF) for working capital purposes.

 

Abu Dhabi Islamic Bank (ADIB) is a major lender to GMS and is leading discussions with the company on behalf of creditors, said the first and second sources. Other significant lenders to the company include First Abu Dhabi Bank (FAB) and HSBC, according to the first source. Lenders have not hired an advisor so far, said both sources.

 

At end-December 2018, GMS’s interest cover ratio (adjusted EBITDA to LTM net finance charges) hit 2.9x, compared to a covenant under its term facility stipulating the ratio not fall below 3x. In January, GMS agreed an amendment with bank lenders to reduce the interest cover covenant to not less than 2.5x for the 31 December 2018 test date.

 

Other covenants under the term facility include a finance service cover covenant, a net leverage ratio covenant and a security cover covenant.

 

In its FY18 financial results, GMS noted that while interest and principal debt payments are serviceable this year, there is “significant doubt” over its ability to comply with covenants at their end-June and end-December test dates in 2019 and it plans further covenant amendments.

 

Moreover, the company stated that, on the basis of projected operating performance, it may not be able to meet increased debt payments starting end-3Q20.

 

At today’s share price of GBX 12.06, GMS has a market capitalisation of GBP 42.2m. At time of writing, GMS’s enterprise value stands at GBP 350.6m, according to Debtwire calculations.

 

The company made a net loss in FY18 of USD 5.1m from revenue of USD 123.3m, compared to FY17 profit of USD 4.8m from revenue of USD 112.9m. It reported FY18 adjusted EBITDA of USD 58m, roughly flat on the previous year.

 

GMS, founded in Abu Dhabi in 1977, has a core fleet of 13 self-propelled self-elevating support vessels which service offshore oil, gas and renewables installations.

 

GMS and its press relations consultant did not respond to requests for comment. The company lists its international legal adviser as Linklaters and its local legal adviser as Al Tamimi & Co.

 

by David Graves and Elias Lambrianos