Risk Factors

5. RiSK FACTORS 5. RiSK FACTORS Before investing in our Shares, you should pay particular attention to the fact that our Company, and to a large extent our activities, are governed by the legal, regulatory and business environment in Malaysia and other countries in which we operate whether presently or in the future. Our business ;s subject to a number of factors, many of which are outside our control. Prior to making an investment decision, you should carefully consider, along with the other matters set forth ;n this Prospectus, the risks and investment considerations below. You should note that the following list is not an exhaustive list of all the risks that we face or risks that may develop ;n the future. 5.1 Risks relating to the industry in which we operate 5.1.1 We are dependent on the offshore O&G industry As our customers operate mainly in the offshore O&G industry, our operations are dependent on the level of activity in the exploration, development and production of oil and natural gas, including the level of capital spending in the offshore O&G industry. Such activities are affected by factors such as volatility in demand for and supply of oil, fluctuations in current and future oil prices, the number, size and locations of oil fields, the demand for and supply of alternative fuels or energy supply, the prices of alternative fuels or energy supply, changes in capital expenditure by customers in the offshore O&G industry, and general economic, social and political conditions. These activities are also affected by laws, regulations, policies and directives relating to energy, investment and taxation and other laws and regulations promulgated by the various governments from which we must obtain licences and permits in order \0 continue to operale. In the event that there is deterioration in the offshore O&G industry and offshore support services industry, or in global or regional economic conditions, O&G companies may defer or reduce their planned E&P expenditure which may reduce the demand for our vessels and services. This may result in a decrease in our business activities, and consequently our results of operations and financial condition may be materially and adversely affected.
5.1.2 The offshore O&G indUStry is SUbject to government regulations The extraction and transport of O&G at sea is subject to inherent risks, such as blow­outs, equipment defects, discharge of pollutants and oil spills, malfunctions, failures and misuses that could cause significant environmental damage, personal injury or loss of life and commercial damage. The offshore O&G industry is subject to regulations which aim to limit and control these risks. and to govern the removal and cleanup of pollutants that may harm the environment. The laws and regulations applicable to the offshore O&G industry, including us, have generally become more stringent. and penalties and potential liability have increased and may increase further in the future. Any additional regulations could increase the cost of our operations or those of our customers and reduce the area of operalions for the offshore O&G industry, which could, in turn, materially and adversely affect our business. financial condition, results of operation and prospects by reducing demand for our services. 5. RISK FACTORS (cont’ct)

5.2 Risks relating to our business and our operations 5.2.1 Our business is subject to compliance with and changes in regulations and local and international laws Our operations are subject to local and international regulations in jurisdictions where our vessels operate, as well as in the countries in which our vessels are registered. We are required by our customers as well as by governments and regulatory agencies, to maintain HSE standards in the course of providing our services. These regulations govern, among other things, workers’ health and safety, manning, construction, and the operations of our vessels. In the event of any change in these standards, we may have to incur additional expenses to comply with such changes. Any failure to maintain standards may result in the cancellation of our present contracts, failure to win new contracts or regulatory authorities imposing fines, penalltes or sanctions on us, revocation of our licences and permits or prohibition from continuing our operations, each of which could have a material and adverse effect on our business. Failure to maintain HsE standards could also result in injuries, death, damage to property and to the environment, and potential liability ans’lng from such events, as well as damage to our reputation. In addition, our vessels require certain licences, permits and certifications to operate. If we fail to comply with the requirements of any such laws. rules or regUlations, we could be subject to substantial administrative, civil and criminal penalties, the imposition of remedial obligations, the issuance of injunctive relief or the non-renewal or revocation of our Group’s business and operational licences, permits, registration and certification. Further, certain of our licences, permits and certifications are subject to annual renewal. There can be no assurance that our existing licences, permits and cer1iflcations will be renewed in the future, despite the submission of relevant documentation. For example, in Nigeria, notwithstanding that the Nigerian Maritime Administration and Safety Agency (“NIMASA”) is cognisant that 6 of our OSVs, namely the Armada Tugas 4, Armada 6 and Armada Tuah 101 (which have been operating in Nigeria since end-2009) and Armada Tugas 1, Armada Tuah 81 and Armada Firman 2 (which have been operatin9 in Nigeria since 2010) are involved in the provision of O&G-related services in Nigerian waters, we have yet 10 formally obtain cabotage permits in respect of the same. These OSVs contributed 7.3% and 5.7% of our total revenue for the years ended 31 December 2009 and 31 December 2010, respectively. The application for the cabotage permits, which is managed by our joint-venture partner, was made in 2009 and subsequently, in 2010 and 2011. We are unable to ascertain the expected date of issuance of the cabotage permits by NIMASA as it is subject to the internal procedures of NIMASA. Notwilhstanding that NIMASA has yet to formally issue the cabotage permits’ to us, we have paid the reqUired cabotage fees upon request by NIMASA and such payments have been dUly acknowledged by NIMASA. Under the Nigerian Coastal and Inland Shipping (Cabotage) Act 2003, participation in Nigerian domestic coastal trade without the necessary permits and approvals could result in fines of up to NGN15,000,000 (approximately RM290,000) per OSV and/or a forfeiture of the OSV, or such higher sums as the Nigerian court may deem fit. There can be no assurance that, despite the cognisance by NIMASA that we have been operating without these permits, these penalties will not be imposed in part or in full in the future. The imposition of any such fines in respect of any or all of our OSVs operating in Nigeria and/or the forfeiture of any or all of our OSVs operating in Nigeria could have a material adverse effect on our business, financial condition, results of operations and prospects. Further, in the event of failure 10 secure the abovementioned permits, we would not be able to fulfil our existing contractual obligations and would suffer loss in revenue. As these OSVs are currently on short·term charters, in the event of termination, the estimated loss of future income in 2011 from these OSVs is comparable to about 1.2% of our total revenue for the year ended 31 December 2010. 5. RiSK FACTORS (conl’d) Changes to current laws and regulations or the introduction of new laws or regulations by local or international bodies or the imposition of additional conditions to our licences, permits and certifications could cause our Group to incur significant additional compliance costs. Furthermore, if we are unable to comply with the new laws and regulations or additional conditions imposed on our licences, permits and certifications, or should any of our ncences, permits or certifications be suspended, revoked or not renewed, our vessels may not be allowed to operate and consequently, our results of operations and financial position may be materially and adversely affected. 5.2.2 We may be subject to environmental risks and liabilities We are subject to environmental regulations pursuant to a variety of international conventions and state and municipal Jaws and regulations. Compliance with such regulations can require significant expenditures and a breach may result in the imposilion of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expeeled to result in strieler standards and enforcement, larger fines and liability and potenlially increased capital expenditures and operating costs. Environmental laws may result in a material increase in our costs of operating our fleet or otherwise materially and adversely affect our financial condition, results of operations and prospects. The discharge of pollutants into the air or water may give rise to liabilities 10 governmental authorities and third parties and may require us to incur costs to remedy such discharge. Changes in environmental laws may also expose us to liability for the conduct of or conditions caused by others, or for aels which were in compliance with all applicable laws at the lime such actions were taken. Furthermore, some environmental laws provide for joint and several slrict liabilities for environmental remediation of releases of hazardous substances, which could result in liability for environmental damage without regard to negligence or fault. In April 2010, the Deepwater Horizon, a deepwater drilling rig in the Gulf of Mexico, sank after an apparent blowout and fire. Among the possible future consequences of this event are additional regulatory oversight and control with respect to offshore drilling, a potential ban or restriction on O&G exploration in certain offshore areas, particularly deepwater drilling, and an increase in insurance premiums for casualty insurance that may be more difficult to·obtain. Any such development could reduce demand for offshore support services both in the Gulf of Mexico and internationally, which may have an adverse effect on our operations. and prospects.
5.2.3 We are subject to weather and natural hazards Our vessels and our equipment are also subject to weather and natural hazards. Adverse changes in weather and natural hazards such as the occurrence of typhoons, tsunamis and earthquakes in the areas where we operate may cause damage to our vessels and delays or suspensions in our operations. Our operations may experience disruption if any of our vessels and/or our equipment suffer significant downtime. This may have a material adverse impact on our revenue and profits and our financial position. 5. RISK FACTORS (cont’d) 5.2.4 We are affected by timely access to resources, yard space and price escalations and as such, may face delay in the completion and delivery of projects including conversion of FPSOs In many cases, our projects involve significant procurement of equipment and supplies and extensive construction management and other activities conducted over extended time periods. Any procurement difficulties, equipment pertormance failures or other factors may result in actual revenues or costs being significantly different f(Om our original estimation. Some of these risks include: We may encounter difficulties related to the procurement of materials, or due to schedule disruptions, equipment performance failures or other factors that may result in additional costs to us, reductions in revenue, claims or disputes; We may not get access to labour and human resources required to continue to successfully execute our business strategy and operations; We may not get access to yard space in order to implement our conversion or construction projects; We may face difficulties in engaging third-party subcontractors, equipment manufacturers or materials suppliers or failures by third-party subcontractors. equipment manufacturers or materials suppliers could result in project delays and cause us to incur additional costs; and We are exposed to increase in labour costs and escalation in prices of key materials (such as steel and fabrication materials) from the time we execute these types of contracts to the time we place our order for the relevant materials. As a result of the above factors, we may face delays in the completion and delivery of our projects. A significant delay in the completion and delivery of projects or a significant performance deficiency could have a material adverse effect on our Group’s business, results of operations and financial condilion. Furthermore, the consequent damage to our reputation resulting from significant delays in the delivery of projects or any significant performance deficiency may affect our ability to secure future contracts. These events and the losses associated therewith, to the extent that they are not adequately covered by contractual remedies or insurance, could materially and adversely affect our results of operations and financial condition. In addition, from time to time we agree with our customers to convert and supply an FPSO to service a specific project. In the event of any material delay in the conversion of such vessels, allhough we may seek to impose penalties on yards or suppliers, there can be no assurance that we will recover amounts sufficient to cover any related losses or at all, which may have a material and adverse effect on our results of operations and financial condition. 5. RISK FACTORS (cont’d)
5.2.5 We are subje~t to a number of contractual and project execution risks We are engaged in a highly competitive industry, and we have contracted for a number of projects on a fixed~price basis, subject to specific terms and conditions. In addition, some of our contracts specify minimum performance requirements. These risks are generally inherent in the industry in which we operate and may result in reduced profitability or losses on projects, which in turn may materially and adversely affect our financial condition and results of operations. Some of these risks include: Construction and project management associated with execution of our projects and maintenance of our operations; Cost overruns associated with our fixed-price contracts with limited price escalation provisions, where we bear all, or at least a portion of, increases in costs; Inability to meet delivery performance requirements of our contracts which may result in potential penalties or liquidated damages. For example, if we are unable to achieve our contractual availability and/or uptime, the related contracts generally provide for a reduction or suspension in payment of the daily charter rate; and Inability to obtain compensation for additional work we perform or expenses we incur as a result of customer change orders or faulty equipment or materials.
5.2.6 Our charter contracts may be terminated upon the occurrence of certain events Our charter contracts are for varying periods of time. In line with industry practice, our customer contracts ordinarily contain clauses which could, amongst others, give the customer a right of early termination, Some of our charter contracts may be terminated for convenience under specified conditions, with related compensation and in certain cases, for cause upon the occurrence of certain events, such as non­performance, events of force majeure, loss or seizure of vessels or unavailability of the vessel due to various reasons such as confiscation or requisition by the government of the jurisdiction under which the vessels are registered and/or operate. The termination of existing charter contracts and the inability to secure a replacement contract within a reasonable timeframe will reduce our revenue and may have a ,material adverse impact on the results of our operations. Our revenue and profitabiiity will also be materially and adversely affected if we are not able to re~ deploy our vessels for a period of time upon termination of existing contracts, if there are lengthy negotiations over the terms of any charter contracts, or the charter contracts are renewed on less favourable terms. As such, there can be no assurance that the contracts in our orderbook will be performed and will generate revenue. The contracts that make up our orderbook as at the LPD amounted to RM5.8 billion as set out in Section 12.2.11 of this Prospectus. Given the forward-looking nature of our orderbook, the amount stated therein is not necessarily indicative of our future earnings. For example, we may not achieve our expected margin or we may suffer losses on one or more of these contracts, in which case our income would be reduced. Any operational issues with the performance of our contracts, cancellation or delays could materially and adversely affect our business, financial condition and results of operation. 5. RISK FACTORS (conl’cI)
5.2.7 Our FPSO business is subject to significant operating risks Our FPSO vessels are designed and equipped according to specilicaUons from our customers. Our contracts are usually structured (0 secure an acceptable return on the investment within the contract period, with a fixed period of contract and a further option period. There can be no assurance that our vessels will achieve the returns expected from them due to technical risks, unforeseen operational problems, unexpectedly high operating costs, additional capital expenditure and penalty payments, accidents such as human errors, weather conditions, faulty constructions, among other risks. The probability of FPSO conlract extension options being exercised, existing contracts being extended or new contracts being obtained, as well as the terms of new contracts. may be negatively impacted by factors such as reduclions in oil reservoir reserves, changes in vessel specificalions, and lower all prices generally. When our contracts expire. or are tenninated early, we may encounter difficulties redeploying our FPSO vessels at existing rate levels. or even redeploying our FPSO vessels at all. Furthermore such redeployment. if achieved. may require us to incur additional capital expendilure that may not be recoverable from our customers. In the event that we do not achieve adequate financial returns during our contract periods, our contracts are not extended, or bur FPSO vessels cannot be re-deployed, our operations and financial condition may be materially and adversely affected. 5.2.8 A small number of vessels and customers contribute a significant proportion of our revenue We are dependent on a small number of vessels of high value to provide our FPSO and installation services 10 the offshore O&G industry. These vessels operate in a hazardous marine environment. often in jurisdictions with complex legal and regulatory requiremenls. In the evenl of a service disruption or damage to our vessels, we may incur losses which in turn, may malerially and adversely affect OUf financial condition and results of operations. Further, there can be no assurance that changes in the regulatory environmenl in the offshore O&G industry may not require us to undertake modifications to our existing vessels, which could result in disruption to our services. In addition, historically. a limited number of customers have contributed to a substantial portion of our revenues. The loss of a key customer, if not replaced. could materially and adversely affect our financial condition and results of operations. as could factors that could have the effect of slowing our customers’ sales. In particular. a reduction in any of our customers’ sales prices or overall sales volumes may lead to decreased production by such customers, resulting in lower demand for our services. For the years ended 31 December 2008, 31 December 2009 and 31 December 2010, our largest customer represented 22%. 23% and 25% of our total revenue, whilst our 3 largest customers represented 53% of our total revenue for the year ended 31 December 2008, and our 4 largest customers for the years ended 31 December 2009 and 31 December 2010 represented 54% and 72% of our total revenue, respectively. Any cancellation or other tennination in the fulure by any major customers could have a material adverse effect on our business, prospects. resulls of operations, cash nows and financial condition. 5. RISK FACTORS (cont’d) 5.2.9 We have significant indebtedness and expect to continue to require additional capital in the future and are exposed to the risks inherent in capital funding We have and will continue to have a significant amount of borrowings. As at 31 March 2011, our lotal borrowings stood at RM3,479.3 million (including RM1.1 million of hire purchase). Our gearing ratio as at 31 March 2011 is about 2.75 times, which is higher than the average gearing ratio of the industry players of 1.03 limes (Source: Bloomberg as at 8 June 2011). Nevertheless, our gearing ratio is expected to decrease to about 0.85 times post-IPO, details of which are set out in Section 12.3 of this Prospectus. Our ability to service our debts and other contractual obligations will depend on our future operations and cash flow generation, which in turn will be affected by various factors, many of which are beyond our control. As we operate in a capital~intensive industry, we have historically required capital to acquire or carry out improvement work on vessels and may require additional capital in the future to fund the acquisition or construction of additional vessels. Generally, expenditures necessary for maintaining a vessel in good operating condition increases with the age of the vessel, but are difficult to predict with precision. In addition, unanticipated changes in governmental regulations and safety or other equipment standards may require unanticipated expenditures for alterations or the addition of new equipment to older vessels. As a consequence, we may need to lake our vessels out of service for longer periods of time or more often than planned in order to perform necessary repairs or modify the vessels in order to meet such regulations. There can be no assurance that our vessels will not require extensive repairs which would result (n significant expenses and extended periods of time during which these vessels would be out of service. Such an occurrence could have a material adverse effect on our business, results of operations and financial condition. Our access to debt financing for new projects and acquisitions and to refinance maturing debt is subject to many faclors, some of which are outside of our control. Failure to raise the required capital in the future on acceptable terms, or at all, may limit our Group’s expansion and growth, which in turn may affect our Group’s ability to execute our growth strategies and compete in the offshore support services industry. In addition, iF we have difficulty servicing our debt or providing for other contractual obligations in the future. we may be forced to take actions such as reduce or delay capital expenditures, reduce costs, sell off assets, refinance or reorganise our debt or other obligations and seek additional equity capital, or any combination of the above. We may not be able to take or may be restricted from taking any of these actions on satisfactory terms, or at all due to, among other things, restrictive covenants within our financing agreements which prohibit or hamper our ability to dispose of or invest in any assets, change our scope of business and/or change our ownership structure. Alternatively, we may resort to further equity financing to raise Ihe required capital for future expansion. Financing through the issuance of new equity or equity-linked securities may result in the dilution of the interests of our shareholders and such new equity securities may have rights, preferences or privileges senior to those of the existing shareholders. 5. RISK FACTORS (cont’d) As a result of our indebtedness, we are exposed to interest rate risk, primarily from borrowings bearing variable interest rales 10 the extent that our exposure to floating interest rates remains unMdged by interest rate swaps. As at 31 March 2011, RM3,377.4 million of our total indebtedness bear a variable rate of interest out of which we have entered into interest rate swap agreements in respect of RM601.3 million of indebtedness. As result, as at 31 March 2011, 82.2% of our total indebtedness was exposed to interest rate risk without the protection of interest rate swaps. Our financial expenses (including amounts expensed and capitalised) arising from such borrowings amounted to RM33.1 million for the 3 months ended 31 March 2011. Changes in economic conditions could result in higher interest rales, thereby increasing our interest expense and reducing our profitability and funds available to meet capital and operational expenditure or other purposes. Our Group’s ability to meet our payment obligations and to fund planned capital expenditure will depend on the success of our business strategy and our ability to generate sufficient revenues to satisfy the debt obligations. which are subject to many uncertainties and contingencies beyond our control, including those set out in this Prospectus. 5.2.10 Maintenance and repair for our vessels and equipment may require subStantial expenditure We are required to maintain our vessels and/or our equipment to certain standards and to maintain the certification of such vessels and/or certain equipment. Such maintenance may involve substantial costs. which may materially and adversely affect our results of operations. Our operations are dependent on the operating efficiency and reliability of our vessels andlor our equipment in terms of operalfonal worthiness and the safety environment. Any unexpected breakdown or non-performance of vessels and/or equipment is difficult to predict and in the event of downtime. additional costs and losses may be incurred by our cuslomers arising from the disruption of their workflow and scheduled activities and some of these costs may be passed down to us. Rectification of the breakdown or non-performance, depending on its severity, may also require replacement or repair of key components and there may be long lead times required in the procurement of these components. Such rectification on the affected vessels and/or equipment may require us to incur significant costs and may result in such vessels and/or equipment being out of service and being unable to generate revenue for us over extended periods of time. In such an event, we may be unable to meet our contractual obligations with our customers, which in turn may materially and adversely affect our reputation as well as our results of operations and financial condition. 5.2.11 We face competition from existing offshore support service providers and new entrants in the markets in which we operate The offshore support services industry is a competitive induslry comprising a diversified group of players ranging from large multinational companies to small and medium·sized enterprises. As such, we face competition from existing and new domestic and international offshore support service providers in the markets in which we operate. We also face competition from foreign vessel suppliers which have joint­venture arrangements with local licensed vessel suppliers that provide various maritime services to oil field operators. The principal competitive factors in the markets that we serve include price, quality of service. safety track record, reputation of vessel operators and crews, and the quality and availability of the type of vessels required by the customers. Our competitors may have longer operating histories and greater financial, technical, marketing and other resources than we do. 49 5. RISK FACTORS (conl’d) Should our existing or new competitors offer services at a lower cost or engage in aggressive pricing in order to increase their market share, our turnover may decline if we are not able to match their costs or aggressive pricing. We may have to provide more competitive pricing in order to attract new customers and retain our existing customers. A reduction in our pricing without any corresponding cost reduction could materially and adversely affect our profitability and financial condition. As a result, there can be no assurance that we will be able to compete successfully against our competitors as well as new market entrants in the future. Our failure to remain competitive may adversely affect our business and growth and could have a material adverse impact on our results of operations and financial condition. 5.2.12 We are subject to political risks inherent in conducting our business internationally We are active in a number of regions with some of these regions being SUbject to political instability. A substantial portion of our vessels operate in international waters and we are therefore SUbject to a number of risks inherent in any business operating in foreign countries, especially in developing nations. These risks include, among others, political instability, expropriation, nationalisation or detention of vessels, import and export quotas and other forms of public and governmental regulation, foreign currency fluctuations, problems arising from collections from customers, repatriation of funds and terrorist attacks. In addition, as we expand internationally, most of our operations will be subject to international regulations, including foreign laws. We may be required to procure a local partner or otherwise restructure our operations to comply with such regulations, or may be required to cease operations in these areas. Furthermore. a government could seize one or more of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes her owner. Requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. For example. new legislation is being proposed to reform the O&G industry in Nigeria and this mayor may not have a material adverse effect on our business and operations. Further details on such new legislation are set out in Section 8 of this Prospectus. Although our business and operations have so far not been materially and adversely affected by any such events, we are unable to predict that our Company can remain unaffected by the consequences of any such events in the future, If any of these events or other similar events occur in the future, it may have a material impact on our operations and consequently, materially and adversely affect our financial condition and results of operations. 5, RISK FACTORS (cont’cf)
5.2.13 We are exposed to acts of piracy Acts of piracy have historically occurred in areas where we have operated, such as the west coast of Africa and there is a risk that acts of piracy will continue to occur in these areas, as well as in other regions. Although our risk could be mitigated through security arrangements (such as armed security escorts and naval support) and insurance, such arrangements may be unavailable, may only be available at increased costs or may prove to be insufficient. In addition, crew costs could also increase if piracy continues to be a risk. Detention hijacking as a result of an act of piracy against our vessels, or an increase in cost or unavailability of insurance for our vessels could have a material adverse impact on our business, financial condition and results of operations. Although our business and operations have not been materially and adversely affected by acts of piracy, there can be no assurance that we will not be affected by such acts in Ihe future.
5.2.14 We are exposed to technological risk The offshore O&G industry is a highly technical and technology-based industry. As our customers move their offshore operations into deeper waters, they may demand more powerful vessels equipped with greater technological capabilities and larger capacities 10 support their operations. In addition, we may also need to improve our technical know-how and technological understanding associated with large and complex projects. If we are unable to meet their requirements, this may affect our customers’ confidence in us, and hence our revenue and profitability could be materially and adversely affected. We continually seek to stay on top of new technologies and to implement new technologies into our major projects in a safe and cost competitive way. There is a risk that such new technologies may not function as expected and thus resulting in modifications or delays, which could have a material adverse impact on our business, financial condition, results of operations and prospects. There can be no assurance that we will be successful in coping with any future technological change and innovation 10 avoid any material adverse effect on our operations. 5.2.15 We are dependent on our key management and key technical personnel as well as our ability to hire and retain skilled and specialis.ed employees We believe lhat our continued success and future performance depends to a large extent upon the skills, abililies, experience, competency and continuous efforts of our key management, and on our Group’s ability to hire and retain qualified and competent personnel. The experience, knowledge and expertise of our key management are pivotal to our Group’s success. While we have made efforts to nurture and maintain good relationships with our key management, there can be no assurance that the loss of any of our key management personnel can be avoided and would not materially and adversely affect our Group’s business, operating results and financial condition. Our busihess units are dependent on Ihe application of highly advanced technology and knOWledge. The number of people with the required expertise and experience is small whilst competition to acquire their services is usually intense in the offshore O&G industry. 5. RISK FACTORS (cont’d) As such, we could experience difficulties in attracting, recruiting and retaining the appropriate number of specialists for our business needs. We may be required to increase our remuneration package to attract and retain such personnel. As our future performance will depend on the continued services of these specialists, a sudden loss of key personnel or the inability to manage the attrition rate in different employee categories could adversely affect the quality” of our services, the growth of our business and result in increased costs.
5.2.16 We are exposed to risks relating to growth and expansion Our future operating results will depend on our management’s ability to manage our growth, which includes recruiting and retaining qualified employees, controlling costs and expanding our fleet of vessels and facilities and their capacity utilisation. As part of our future plans, we intend to expand our business, both geographit;ally and operationally” Any such expansion carries with it inherent risks and uncertainties and requires significant management attention and company resources and may not yield the results we expect. The expansion of our international operations will expose us to -riSKS relating to investments in certain foreign countries. Any future international expansion may also fail due to other difficulties inherent in foreign operations, including: • unexpected changes in international and foreign regulatory requirements and tariffs:
• difficulties in staffing and managing foreign operations;
• potential adverse tax consequences;
• cultural differences;
• price controls or other restrictions on foreign currency; and
• difficUlties in obtaining export and import licences.

There is no assurance that our business expansion will be successful or lead to an increase in our profits. Our expansion could also result in an increase in the fixed costs of our operations. Our ability to maintain or increase our profitability will continue to depend, in part, on our ability to increase revenues and to maintain or increase the utilisation rates of our facilities and vessels. In addition, the growth of our operations will place additional demands on our management team”: our in-house design and technical production teams, and our procurement, financial reporting and information technology teams and systems. The expansion of our operations will also require significant attention from our management and other personnel and may divert such resources from other aspects of our business. We may also not be able to find Qualified high-level management to oversee our expansion into new markets or to find managers who will understand and be able 10 integrate into our corporate culture, In addition, we will have to integrate all of our reporting, logistics, accounting, financial and fulfilment systems or functions across our locations. If we do not manage such integration effectively, our business, financial condition and results of operations could be materially and adversely affected. 5. RISK FACTORS (cont’d)
5.2.17 We may have inadequate insurance coverage The operation of our vessels involves inherent risks such as oil spills, damage to and loss of vessels and cargo sustained in collisions, property loss and interruptions to operations caused by adverse weather and environmental conditions, mechanical failures, crew negligence and navigation errors. The occurrence of any of these events may result in damage to or Joss of our vessels and our vessels’ cargo or other property and injury to passengers and personnel on board. Such occurrences may also result in a significant increase in operating costs or liability to third parties. In addition, concerns about other factors (inclUding hijacks or attacks), have caused significant increases in the cost of insurance coverage and may result in higher insurance charges and in turn, higher operating costs in the future. In the event of an oil spill or damaged or lost cargo, we may incur liability for containment, clean-up, salvage costs and other damage that may arise as a result. We may also be liable for damage sustained in collisions and wreck removal charges arising from the operation of our vessels. Moreover, our customers may become subject to penalties, fines or insurance claims and attempt to pass on part or all of these costs to us_ In addition, we may be liable for SUbstantial fines and penalties imposed by the authorities of the relevant jurisdictions. Any of such events will disrupt our business and lead to a reduction in revenue and profits and increase our cost of operations. Currently, we believe thal our vessels are sufficiently covered by, amongst others. hull and machinery insurance, loss of hire insurance and protection and indemnity insurance, in line with industry practice. Further, we have not made any material insurance claims in the past. However. there can be no assurance that all risks can be adequately insured at all times against all potential liabilities and losses or that any insured sum will be paid. tn the event of damage or losses in excess of the insurance coverage taken up, we may be required to make material compensation payments, As such, our financial condition may be materially and adversely affected. Furthermore, events such as wars, piracy or terrorist attacks may result in substantial increases in our insurance premiums, thereby affecting our financial perfonnance. 5.2.18 Our cash flow may be adversely affected by d.elays in collection or non­recoverability of trade receivables Cash flow constraints may arise due to delays in collection or non-recoverability of trade receivables. This may affect our ability to pay our suppliers, potentially delaying our project implementation and consequently materially and adversely affecting our financial condition. We generally grant credit terms of between 30 and 45 days to our customers, and are therefore exposed to potential payment delays and default by such customers. There is no assurance that we will be able to collect such debts on time, or at all. If our customers experience cash flow difficulties or a decline in their business performance, they may default in their payments to us. Further, during economic downturns, our customers may be materially and adversely affected financially and the possibility of defauUs in payment to us may be greater. As a result, we may experience payment delays or in more severe cases, non-recovery of debts from our customers. We would then have to make provisions for doubtful debts, or incur debt write-offs, which may have a material adverse impact on our financial resulls. 53 5. RISK FACTORS (cont’d) 5.2.19 We may be adversely affected by any change in the current taxation regulations in the jurisdictions in which we operate Any changes in the current tax regime and/or laws, rules and regulations pertaining to the taxation of companies, or the interpretation thereof, whether in Malaysia or in any other jurisdictions in which we operate, which have a retrospective, current and/or prospective effect, will affect the tax paid or payable by us arising from a tax reassessment on our financial results. For example, there was a tax reassessment for BAN for the years of assessment from 2002 to 2007, for which voluntary payments were made. Currently, under Section 54A of the Malaysian Income Tax Act, 1967, income arising from the business of transporting passengers or cargo by sea on a Malaysian ship or from letting out on charter a Malaysian ship on a voyage or time charter basis of our Group is exempt from tax. A Malaysian ship is defined under the Malaysian Income Tax Acl, 1967 as a sea-going ship regislered as such under the Malaysian Merchant Shipping Ordinance, 1952 and excludes ferries, barges, tug boals, supply vessels, crew boats, lighters, dredgers, fishing boats or other similar vessels. Business income from our non-Malaysian ships is taxed at the relevant statutory rates for the year. Any changes in the current tax regulations in Malaysia or tax positions taken by the Malaysian tax authorities in respect of shipping income may adversely affect the amount of income tax payable by our Group and may have a material adverse impact on our financial results.
5.2.20 We are exposed to risks arising from foreign exchange fluctuations Our customer contracts, capital expenditure and operating costs are generally denominated in USD, with a small portion denominated in RM and other foreign currencies. However, we report our financial results in RM. As a result, our financial results are impacted by foreign currency fluctuations, and in particular fluctuations of the USD, against the RM, which may affect our Group’s financial position. We are also exposed to foreign exchange fluctuations in the event of mismatches between the amounts and timing of receipts and payments in foreign currencies. To the extent there are any such mismatches, a significant fluctuation in the applicable foreign currencies against the RM arising from such timing differences, for example in respect of credit terms given to our customers and by our suppliers, we may incur foreign exchange losses. 5.2.21 There may be conflicts of interest between our Company and our related parties We have entered into various transactions with companies directly or indirectly controlled by or connected to our related parties. The Listing Requirements define a related party as a director, a major shareholder or a person connected with such director or major shareholder (inclUding a person that was a director or major shareholder within the preceding 6 months before the terms of the transaction were agreed upon). A “major shareholder” means a shareholder with a sharehoJding of 10% or more (or 5% or more where such person is the largest shareholder in the company) of all the voting shares in the company. In addition, we expect that we will in the future enter into other transactions with related parties. These transactions may involve conflicts of interest which may be detrimental to us. Further, some of our substantial shareholders, Directors or key management have engaged and may in the future engage in businesses carrying on a similar trade as ours or businesses which are the customers or suppliers of ours, from which potential conflicts 0′ interest may arise. 5. RISK FACTORS (cont’d) Ther.e can be no assurance that competition between our businesses and the businesses of our substantial shareholders and companies associated with our substantial shareholders or with our Directors or key management will not arise or that there will not be any other direct or indirect competition and conflicts of interest between our Company and our substantial shareholders and companies associated with our substantial shareholders, Directors or key management. Also. there can be no assurance Ihat direct or indirect competition will not arise in the future between our Company and our substantial shareholders and companies associated with our substantial shareholders, Directors and key management.
5.2.22 Control by a substantial shareholder As disclosed in Section 9.4 of this Prospectus, upon completion of our IPO, OBSB will own about 42% of our enlarged issued and paid-up share capital and thus will be able to exercise control over more than 33% of our Company. The direct and indirect substantial shareholders of OBSB are as set out in Section 9.4 of this Prospectus. As the controlling shareholder of our Company, pther than in respect of certain votes regarding matters in which “it is an-interested party and must abstain from voting under the Listing Requirements, OBSB will be able to influence the eleclion of our Directors, and lhe approval of any corporate proposals or transactions requiring the approval of our shareholders. Although we will be required to comply with the conflict of interests rule under the Listing Requirements, the interests of OBSB may differ from or conflict with the interests of other shareholders of our Company. 5.2.23 An adverse judgment or settlement in respect of any future claims against us could have an adverse effect on our financial condition and the results of our operations The operation of our vessels involves Ihe risk of accidents and other incidents that may lead to claims against our Group. An adverse judgment or settlement in respect of any future claims against our Group may lead to negative publicity about us and adversely affect our reputation and customers’ perception of our safety record as well as have a material and adverse effect on our cash flow, financial condition and results of operations. 5.3 Risks relating to our Shares 5.3.1 There has been no public market for our Shares There has been no public market for our Shares since our delisting on 18 April 2003. There can be no assurance as to the liquidity of any market that may develop for our Shares, the ability of holders to sell their Shares or the prices at which holders would be able to sell their Shares. Our Shares could trade at prices that may be lower than the Institutional Price or the Final Retail Price depending on many factors, including prevailing economic and financial conditions in Malaysia, our operating results and the markels for similar securities. In addition, the market for securities in emerging markets has been subject to disruptions that have caused intense volatility in the prices of securities similar to our Shares. There can be no assurance that the market for our Shares, if any, will not be subject to similar disruptions. Any disruption in such markets may have a material and adverse effect on the holders of our Shares. 5. RISK FACTORS (cont”cf)
5.3.2 There may be a potential delay or failure of the Listing The Listing may be potentially delayed or aborted upon the occurrence of certain events, including the following: {i} we are unable to meet the public spread requirements as determined by Bursa Securities of having at least 25% of our enlarged issued and paid-up Shares being held by a minimum of 1,000 public shareholders holding not less than 100 Shares each at the point of Listing; or (ii) revocation of the approval of Bursa Securities for the Listing and/or admission to the Official List for whatever reason. If the Listing is aborted, investors wilt not receive any IPO Shares and we and the Selling Shareholders will return in full, without interest, all monies paid in respect of any application for the IPO Shares. [f any such monies are not repaid within 14 days after we and the Selling Shareholders become liable to repay it, the provisions of sub­sections 243(2) and 243(6) of the CMSA shall apply accordingly.
5.3.3 Our Share price and trading volume may be volatile The market price of our Shares may fluctuate as a result of variations in the liquidity of the market for our Shares, differences between our actual financial operating results and those expected by investors and analysts, changes in analysts’ recommendations or projections, changes in general market conditions and broad market fluctuations. The market price of our Shares is also susceptible to developments in the offshore O&G industry, including new developments or technology advancements within the offshore O&G industry, corporate exercises, acquisitions or strategic alliances by our competitors or customers. In addition, many of the risks described elsewhere in this Prospectus could materially and adversely affect the marker price of our Shares. Accordingly, there can be no assurance that our Shares will not trade at prices lower than the Institutional Price or the Final Retail Price. Over the past few years, the Malaysian, regional and global equity markets have experienced significant price and volume volatility that have affected the share price of many companies. Share prices of many companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. There can be no assurance that the price and trading of our Shares will not be subject to such fluctuation in the future.
5.3.4 We may not be able to pay dividends or realise dividends from our subsidiaries Dividend payments are not guaranteed and our Board may decide. at its sole absolute discretion, at any time and for any reason, not to pay dividends. If we do not pay dividends, or pay dividends at levels lower than that anticipated by investors, the market price of our Shares may be negatively affected and the value of any investment in our Shares may be reduced. Any payment of dividends may adversely affect our ability to fund unexpected capital expenditures as well as our ability to make interest and principal repayments on our debt. As a result, we may be required to borrow additional money or raise capital by issuing equity securities, which may not be possible or may not be on favourable terms or at all. Further, in the event we incur new borrowings subsequent to the Listing, we may be SUbject to covenants restricting our ability to pay dividends. 5. RISK FACTORS (conl’d) We are an investment holding company and conduct sUbstantially all of our operations through our subsidiaries. Accordingly, an important source of our income, and consequently an important factor in our ability to pay dividends on our Shares, is dividends and other distributions received from our subsidiaries. Our subsidiaries’ ability to pay dividends or make other distributions to us in the future is subject to them having sufficient funds and dislributable profits after setting aside funds required for their operations, other obligations or business plans. Our subsidiaries’ ability to make and obtain dividends may also be restricted by the terms contained in the shareholders’ agreemenls governing those subsidiaries and financing agreements entered into by them. Terms of the financing agreements typically only allow for dividends to be declared provided that financial covenants in these agreements continue to be complied with and no event of default andlor material and adverse effect 10 the business of these subsidiaries would result from such dividend declaration and/or payment. Further, as our Company is a shareholder of our operating companies, our claims as such will generally rank junior to all other creditors and claimants against our operating companies. In the event of an operating company’s liquidation, there may not be sufficient assets for our Company to recoup our investment. For a descriplion of our dividend policy, please refer to Section 12.6 of this Prospectus. 5.3.5 The sale or the possible sale of a substantial number of our Shares in the public market following our IPO could adversely affect the price of our Shares Following the Listing, approximately 70% of our enlarged issued and paid-up share capital will be held by the Promoters and Selling Shareholders, and approximately 30% of our enlarged issued and paid-up share capital will be held by investors participating in our IPO. The IPO Shares will be tradable on the Main Market without reslriclion following the Listing. While we and the Selling Shareholders have entered inlO the lock-up arrangements as set oul in Section 4.10.2 of this Prospectus, and in addition, the Shares held by the Promoters are subject to a moratorium as described in Section 10.2 of this Prospectus, it is possible that we may issue additional Shares after the end of the lock-up period in connection with financing activities or otherwise in the future, and it is possible that the Promoters as well as the Selling Shareholders may dispose of some or all of their Shares pursuant to their own investment objectives. If the Promoters and/or the Selling Shareholders sell or are perceived as intending to sell a substantial amount of our Shares, the market price for our Shares could be materially and adversely affected. The Promoters and Selling Shareholders will own the balance of the remalnrng Shares not offered under the JPO, of which the Shares held by the Promoters will be subject to a moratorium in accordance with the SC’s requirements and the lock-up arrangements. For a description of the moratorium and lock-up arrangements, please refer to Sections 10.2 and 4.10.2 of this Prospectus. respectively. 5. RiSK FACTORS (cont’d)

5.4 Other risks 5.4.1 We may be materially and adversely affected by possible outbreaks of infectious diseases We, as well as our customers and suppliers, operate in countries which may be affected by the outbreak or re-emergence of severe acute respiratory syndrome rSARS”), avian influenza, Influenza A (H1N1) or other infectious diseases. In 2003, certain countries in Asia experienced an outbreak of SARS, a highly contagious form of atypical pneumonia, which seriously disrupted economic activities in the region and caused demand for goods and services to plummet throughout the area. In late 2003 and early 2004, outbreaks of avian influenza occurred in several countries in Asia and spread to other parts of the world including Europe in 2005, and the Middle East and Africa in 2006. In June 2007, new cases of human infection of avian influenza in China and Indonesia were reported. In early 2009, outbreaks of Influenza A (H1N1) occurred in Mexico. In May 2009, the first cases were detected in Asia, and in June 2009, the World Heallh Organisation (“WHO”) declared a global flu pandemic. The WHO and other agencies continue to issue warnings of a potential avian influenza pandemic if there are sustained human-to-human transmissions. An outbreak of SARS, avian influenza, Influenza A (H1 N1) or other contagious disease, or the perception that such an outbreak may occur, or the measures taken by the governments of affected countries against such potential outbreaks could seriously disrupt our operations or those of our suppliers and customers and negatively impact economic conditions globally, which could have a material adverse effect on our business, financial condition. results of operations and prospects. 5.4.2 Forward-looking statements are subject to uncertainties and contingencies Certain statements in this Prospectus are based on historical data, which may not be reflective of the future resulls. Other statements, including, without limitation, those regarding our financial posilion, business strategies, prospects, plans and objectives of our Company for future operations. which are forward-looking in nature, are subject to uncertainties and contingencies. Although we believe that the expectations reflected in such forward-looking statements are reasonable at this time, there can be no assurance that such expectations will subsequently materialise. Their inclusion in this Prospectus should not be regarded as a representation or warranty by our Company, the Promoters, Selling Shareholders, Joint Principal Advisers or any other advisers that the plans and objectives of our Group will be achieved.

 

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