Petrovietnam Drilling and Well Services Corporation
2nd floor, 12 Nam Ky Khoi Nghia Street, District 1, Ho Chi Minh City
Tel: 8-48-39142012 (7 lines) – Fax: 84-8-39142012/84-8-39142022
Website: www.pvdrilling.com.vn
Business license number: 4103004335 issued first time on 15th of February, 2006 by The
Planning and Investment Committee in Ho Chi Minh City
Ho Chi Minh City, 25th of October, 2008
Letter of submission
Shareholders’ Extraordinary General Meeting
to approve the merger of PVD Invest into PV Drilling
Respectfully Addressed:
Esteemed shareholders of PV Drilling
With reference to the merger of PVD Invest – a subsidiary of PV Drilling with 51%
equity owned by PV Drilling – into PV Drilling, PV Drilling has signed a contract with
Price Waterhouse Coopers (PWC) – an international consultant services company – to
evaluate PVD Invest and consult the merging in order to ensure a reasonable conversion
ratio and an equitable merger. In addition, on October 25, 2008, the representatives of
PV Drilling at PVD Invest successfully held a meeting with PVD Invest’s General
Shareholders to approve the merging guidelines, principles, projected conversion ratio
between PVD Invest shares and PV Drilling shares, capital contribution contract between
PVD Invest and its shareholders, or their concessionaire and PV Drilling shares.
To implement the next steps towards merger PVD Invest into PV Drilling, PV
Drilling’s Board of Directors would be honored to submit at the General Shareholders’
meeting the relevant analysis and action plan for consideration and approval. The
meeting is going to be held on the 9th of November 2008, with the following details:
I. ANALYSIS AND EVALUATION OF THE MERGER:
1. PV DRILLING II and PV DRILLING III projects invested by PVD
Invest
Petrovietnam Drilling Investment Corporation (PVD Invest) was established in April
2007 with chartered capital of 1,000 billion VND in which 51% equity owned by PV
Drilling.
The time of establishing PVD Invest was also the time that PV Drilling started putting
PV DRILLING I jack-up rig in operation. Being the first Vietnamese company owned a
drilling rig, PV Drilling has made every effort to improve the management and operation
of its drilling rig to provide high quality services, as well as establishing the trust with
shareholders and investors. At the moment, the cost of building a rig is still increasing.
Under this circumstance, PVD Invest was founded by PV Drilling to capture the
investment opportunity. With the target to build 1 or 2 more jack-up rigs to meet high
drilling demands as well as to share business risks, PV Drilling decided to contribute
capitals to establish PVD Invest.
Right after its formation, PVD Invest had processed to invest PV DRILLING II rig
with the purchase price of USD191 million. One year later, PVD Invest continued to
purchase the construction-in-process PV DRILLING III rig with the purchase price of
USD206 million. Currently, two projects of building PV DRILLING II and PV
DRILLING III rigs are processed in time, safety and high quality. PV DRILLING II is
estimated to be delivered in Q4/2009 and PV DRILLING III at the beginning of 2010.
Total investment cost for two rigs is about USD440 million. The capital structure for two
rigs is 30% financed from shareholders’ equity and 70% from debts. Therefore, the
equity needed for these projects is over 2,000 billion VND and total debts are around
$US 300 millions. To date, the capital arrangement for two rigs as stated below:
-
Jack-up rig PV DRILLING II: VND1,000 billion of equity already contributed
and loan agreement of $US 155 millions already signed.
-
PV DRILLING III rig: PVD Invest had mobilized 466.708 billion VND under the
contract of “Capital contribution Agreement for the project of purchasing the PV
DRILLING III Rig” between PVD Invest and its shareholders or their
concessionaires’ capital contribution. At the same time, PVD Invest completed the
process to invite PetroVietnam to be a stratagic stakeholder for contribution of
VND733 billion. Regarding to the loan, PVD Invest negotiated and agreed on the
term sheets with the Bankers under the condition of PetroVietnam’s guarantee.
Currently, Facility Agreement, mortgage contract, guareentee agreement are in the
final processes and estimated to be completed for drawdown in November 2008.
2. The necessity and benefit of PV Drilling and PVD Invest gained from the
merger:
PVD Invest started financing for the two rigs mentioned above in 2008. During
this time, ,financial markets in global as well as in Vietnam have been impacted by
unforeseen changes resulting a lot of difficulties for PV DRILLING II & III’s
financing in 2008 – 2009 that will be affected to the project investment effectiveness
as follows:
• Interest rates for both USD and VND were increased dramatically compared with
the time of project starting.
• The credit line was limited with the maximum loan amount for PV DRILLING III
jack-up rig about USD100-120 million. Furthermore, the loan conditions are much
tougher and more difficult. In addition, the Banks also requested that loan to be
guaranteed by PetroVietnam and to have feasibility plans for financing the shortfall
amount from this deal..
In view of the above difficulties, the merger of PVD Invest into PV Drilling will
resolve the following issues:
A. First, it will be the resolution for the risks of credit capital deficiency and
unforeseeable impacts resulting from unstable financial markets for both projects as
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well as bringing more opportunities for re-negotiating loan costs and achieving
favourable loan conditions for the current loan contracts.
B. With reference to the initial strategy, PV Drilling who owns 51% equity of PVD
Invest (i.e. 51% of 2 jack-up rig’s), shall be responsible for operating the rigs and
ensuring the business efficiency of the two (2) rigs. Because of the increasing
costs of loan capital and drilling operations, the existence of two rig management
units will increase the operating costs and decrease the profits, thus resulting in
declining the indirect investment efficiency of PV Drilling in PVD Invest. With
experience in operating PV DRILLING I jack-up rig and by sharing manpower
and facilities amongst three (3) rigs, PV Drilling will gain remarkable revenue
from the two (2) rigs: PV DRILLING II and PV DRILLING III.
C. For long-term developments, with PV Drilling’s brand name and financial
capabilities in domestic and international markets and particularly with the total
capacity of the 3 jack-up rigs, there will be more advantages in operating these
two (2) new rigs as well as strengthening PV Drilling’s position.
D. The merger will avoid interest conflicts between PV Drilling and PVD Invest in
the future (if any).
E. Recent oil-price slump has caused a negative impact on the global economy,
especially on the oil and gas markets. The variation of the petroleum market
influences oil companies’ exploration and production strategies and has a direct
impact on drilling markets, leading to unavoidably fierce competition among
drilling contractors. In order to have a solution for these issues, the merger of PV
D Invest into and PV Drilling will improve the competitive advantage of PV
Drilling, compared to the other competitors in Vietnam and the region.
Therefore, the merger of PVD Invest into PV Drilling will be a right and
appropriate solution for most of the above-mentioned issues. Certainly, after the
merger, PV Drilling, as the owner, will perform better in drilling rig operations
and cost management, thus bringing higher investment efficiency for the
Corporation and its shareholders/investors.
2. Benefits of PV Drilling’s shareholders after the merging:
9 The merger will ensure PV Drilling’s fast and firm development and help the
Corporation own two (2) more rigs in the shortest time because of the advantage of
PVD Invest’s contract for two (2) rigs. Additionally, based on the current market
situations and high drilling demands in the Vietnamese oil and gas industry, PV
Drilling will enjoy greater revenues and profit growth, compared with the current
level. This leads to increasing EPS, saving management expenses and capital costs,
and raising the intrinsic value of PV Drilling shares.
9 The merger will not only help to avoid conflicting the interests (if any) between the
shareholders of the two companies but also to resonate the power of the two
companies, raising the confidence of PV Drilling’s shareholders. Moreover, the
ownership of two (2) more rigs will make an important contribution to the
implementation of PV Drilling’s business strategy, which is to become a leading
drilling contractor in Vietnam and competitive drilling and drilling-related services
provider in the region.
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9 PV Drilling, after the merger, will resonate the power of the 2 companies, improving
the intrinsic as well as growing value of its share.
II.
THE MERGER METHOD:
The merger of PVD Invest into PV Drilling will be made under the conversion
of PVD Invest’s shares and shareholders’ or their concessionaires’ capital
contribution into PV Drilling’s shares. PV Drilling will increase chartered
capitals through issuing new shares in exchange for PVD Invest’s shares and its
shareholders’ or their concessionaires’ capital contribution. Therefore, the
General Shareholders’ Meeting will review and agree on key issues as listed
below:
a. Approval of the merger of PVD Invest into PV Drilling
b. Approval of the increased chartered capital through issuing new shares based
on ratified conversion ratio.
c. Approval of conversion ratio between PV Drilling’s share and PVD Invest’s
shares.
d. Approval of conversion ratio between PV Drilling’s share and shareholders’ or
their concessionaires’ capital contribution of PVD Invest.
e. Assigning PV Drilling’s Board of Directors to execute merger implementation
plan in accordance with the Resolution of the General Shareholders’ Meeting
dated November 09, 2008.
The share and capital contribution’s conversion, if approved by the General
Shareholders’ Meeting, will be made after PV Drilling is granted the license for issuing
new shares issued by the State Securities Committee.
III. THE MERGER IMPLEMENTATION PLAN:
After the General Shareholders approve the merger and relevant contents, the General
Shareholders will give PV Drilling’s Board of Directors full authorization for merger
implementation, which is expected to be completed by the first quarter of 2009 with
details as below:
i.
Negotiating merger contract with PVD Invest. Signing
Memorandum of Understanding with PVD Invest based on contents
approved by General Shareholders’ Meetings of the two companies.
ii.
Submitting to State Securities Committee for the approval of issuing
new shares to implement the merger.
iii.
Signing merger contract with PVD Invest.
iv.
Announcing the completion of the signing of the merger contract to
all stakeholders. Making the merger public on mass media as
required by laws and regulations.
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v.
Preparing necessary documents to list newly issued shares.
vi.
Finalizing dossiers for new Certificate of Business Registration of
PV Drilling
IV. PETITION
Above are the analyses and evaluation of the necessity of the merger of PVD Invest
into PV Drilling as well as the recommendation of the merger method and
implementation plan. The merger of PVD Invest into PV Drilling will bring long-term
benefits to shareholders/investors indeed, which will create firm foundation for strategic
and long-lasting development of PV Drilling towards a leading drilling contractor in
Vietnam and provider of competitive drilling and drilling-related services in the region.
It’s our honor to request the esteemed shareholders to study and prepare comments on
the above issues for discussion and approval at the General Shareholders’ Meeting of PV
Drilling on November 09, 2008.
Yours sincerely,
ON BEHALF OF BOARD OF DIRECTORS
CHAIRMAN
(signed and stamped)
ĐỖ ĐÌNH LUYỆN
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