STX OSV Holdings Limited - Parent pares down stake to 50.75% (DBSVickers)

BUY S$1.42, Price Target: S$1.86

Sale of shares in STX OSV by parent. STX Europe, the parent company of STX OSV, has announced that it has agreed to sell an 18.3% equity stake in the latter, comprising 215.6m shares, to affiliates of OZ Management LP (Och-Ziff). Goldman Sachs, the Sole Global Coordinator in STX OSV’s IPO, has consented to this sale of shares.

At 6.3% discount to Friday’s closing price. The placement was priced at S$1.33/share, representing a 6.3% discount to Friday’s closing price of S$1.42, and is expected to net STX Europe gross proceeds of S$286.7m.

STX Europe remains controlling shareholder with 50.75%. Following this, STX Europe will remain the largest shareholder of STX OSV with 50.75% stake, while Och-Ziff’s shareholding will increase to 20.0%. As part of this exercise, STX Europe has entered a separate lock-up agreement with Och-Ziff to which it agreed not to dispose of any additional shares in STX OSV until 12 November 2012 with certain limited exceptions.

Sale to partially fund STX group’s bid for a 15% stake in Hynix? The sale of shares is to improve STX OSV’s trading liquidity, and also to secure operating capital for the STX group, reduce its corporate debt, loan to shareholders and for general corporate purposes. This exercise comes on the back of media reports that STX Corp, the holding company of STX Group, has submitted a LOI to bid for a 15% stake in Hynix Semiconductor, worth c. US$2.2bn, so as to diversify its business portfolio.

Sale of stake by parent is not a surprise. Recall that STX Europe has been widely expected to sell down its stake in STX OSV, as it had disposed fewer vendor shares than planned during the latter’s IPO in November 2010 due to prevailing poor market conditions. Indeed, the disposal of an 18.3% stake is in line with expectations that STX Europe will still hold a majority stake in STX OSV post placement.

Removes share overhang concern. While this placement at a 6.3% discount to the last traded price could lead to near term pull-back in the share price of STX OSV, we believe this removes the share overhang concern, and clears the way for the stock to re-rate in the medium to longer term on order wins and earnings performance.

No change to our numbers, TP and recommendation. We expect near to mid-term catalysts to come from 1) the confirmation of the second PSV; 2) announcement of funding approval for the 8 Transpetro LPG Carriers;and 3) materializing of orders (especially for PSVs, OSCVs, and now even AHTS) from the high volume of enquiry observed by the group. The stock remains attractively valued at FY11/12 PE of 8.3x/7.8x, supported with a FY11 dividend yield of 3.6%.