Risk Factors

Risk Factors

Our operations are subject to the legal, regulatory and business environments in the countries in which we operate. Our operations are also subject to a number of factors, many of which are outside our control. Before making an investment decision, you should carefully consider, along with the other matters in this Prospectus, the risks and investment considerations set out below. The risks and investment considerations set out below are not an exhaustive list of the challenges that we currently face or that may develop in the future. These and other risks, whether known or unknown, may have a material adverse effect on us or our Shares.
5.1 RISKS RELATING TO OUR INDUSTRY
5.1.1 Demand for our drilling services and oilfield services, the prices that we charge for our services and our profit margins depend on the level of activity of, and the corresponding capital spending by, oil and gas companies, which are significantly affected by volatile oil and natural gas prices and cyclicality in the offshore drilling and oilfield services industries. 
As our customers operate mainly in the oil and gas industry, demand for our drilling services and oilfield services is closely linked to the levels of offshore exploration, development and production activity of, and the corresponding capital spending by, oil and gas companies, which in turn are primarily affected by the trends in and outlook of oil and natural gas prices.
Both oil and natural gas prices have historically been volatile and may be volatile in the future. Oil and natural gas prices have a direct bearing on the levels of activity in the oil and gas industry, including the levels of offshore exploration, development and production activity. Prices for oil and natural gas fluctuate in response to a variety of factors, including, without limitation:
(i) the level of demand for oil and natural gas, which is strongly correlated with global economic growth;
(ii) the cost of exploring for, developing, producing and delivering oil and natural gas;
(iii) advances in exploration, development and production technology; (iv) the level of oil production by non-OPEC countries, the ability of countries within OPEC to set and maintain oil production levels and oil prices and the availability of excess production capacity by countries within OPEC;
(v) government policies, including policies relating to the exploration, production and development of their oil and natural gas reserves (particularly offshore reserves) and policies relating to energy security or environmental regulations;
(vi) adverse global weather conditions and natural disasters;
(vii) global political, military and economic conditions;
(viii) shifts in end-customer preferences toward fuel efficiency; and
(ix) potential development of alternative fuels.
Any prolonged reduction in oil and natural gas prices may depress the levels of exploration, development and production activity. This in turn may ultimately depress the demand for drilling services and oilfield services, the prices charged for such services and the utilization rates of drilling rigs and other assets related to exploration, development and production activity.
In addition, any perception of lower oil and natural gas prices in the longer term may also similarly reduce or defer major expenditures by oil and gas companies given the long-term nature of many large­scale development projects. In addition, the offshore drilling industry has historically been cyclical, with periods of high demand and high day rates for offshore drilling rigs leading to increased capital expenditure on new and existing offshore drilling rigs. Increased capital expenditure and higher demand generally increase the price of these rigs and, in the case of newly built offshore drilling rigs, the amount of time to construct and deliver these rigs. More offshore drilling rigs being brought into service may eventually lead to periods of oversupply, which are often followed by low utilization rates and day rates for such rigs. This cyclicality in the offshore drilling industry can result in similar cyclicality in oilfield services related to offshore drilling.
Uncertainty concerning potential movements in oil and natural gas prices or cyclicality in the offshore drilling and oilfield services industries could have a material adverse effect on our business, results of operations and cash flows.
5.1.2 We may fail to respond to technological changes in the drilling and oilfield services markets or changes in the needs, preferences and technical requirements of our customers. 
Our competitiveness in the drilling and oilfield services markets depends largely on our ability to keep up with developments in technology in related areas. This technology is subject to rapid and significant change. If we are unable to anticipate technological trends or rapidly develop and incorporate new technology that our customers require, we may not be able to meet the high technical requirements of our customers or otherwise offer sufficiently advanced services to our customers’ satisfaction.
In addition, our operations, including our range of services, offerings and pricing, are largely subject to changes in the needs, preferences and technical requirements of our customers. For example, although the current focus on EOR projects in Malaysia is compatible with our current service offerings, future demand for drilling of offshore fields in deepwater regions of South East Asia, as increasing numbers of these fields in shallow water regions mature, could require us to adjust our offerings. If we do not have the expertise, technology or capital resources to respond adequately to changes required by our customers or fail to respond to those changes in a timely manner or at all, we may lose these customers or fail to establish relationships with new customers, which could have a material adverse effect on our business, results of operations and cash flows.
5.1.3 We operate in a global, competitive environment, and if we fail to compete effectively, we may not be able to expand our operations or maintain our existing market presence. 
We face competition from local and global players providing similar services, and we expect to see increased competition from these players. Some of our competitors may have a competitive advantage over us in selected areas by having, for example, better asset portfolios (including larger fleets of semi-submersible rigs, premium Jack­up rigs and HWUs or more technologically advanced versions of these assets), longer operating histories, stronger capital resources, larger customer bases, stronger relationships with particular customers or better name recognition. Our contracts are traditionally awarded on a competitive bid basis, and we and our competitors tend to compete on experience, technology, personnel, scale of operations and costs. Our ability to succeed in the markets in which we operate will depend on many factors, including our pricing, experience (including track record of timely project completion), service quality, financial strength, equipment suitability, reputation for HSE practices and suitability of technology. If we fail to compete effectively, we may not be able to secure new or maintain current contracts. Subsequently, we may not be able to expand our operations or maintain our existing market presence, which in turn could have a material adverse effect on our business, results of operations and cash flows.
5.1.4 Our drilling operations are subject to the inherent risks and occupational hazards of the oil and gas industry. 
Our drilling operations are subject to the inherent risks and occupational hazards of the oil and gas industry, and our customers emphasis the safety records and quality management systems of their drilling service providers. Risks and hazards inherent to our drilling operations include blowouts, reservoir damage, loss of production, lost or stuck drill strings, equipment defects, uncontrolled fires or explosions, and pollution and other damage to the environment as a result of spillage of hydrocarbons, fuel, lubricants or other chemicals and substances used in drilling services operations. The provision of drilling services requires the use of heavy equipment and exposure to dangerous conditions that can cause personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage and involuntary suspension of our operations. Any of these developments may subject us to property, environmental and other damage claims by employees, customers and third parties, and we may have to channel substantial resources towards defending or resolving these claims. Our customers may be unable or unwilling to indemnify us against these developments. Our contractual indemnification rights also may not adequately cover losses arising from these developments, may not be customary or available at all, and courts may decide that certain indemnities in our current or future contracts are not enforceable. The occurrence of any of the foregoing could have a material adverse effect on our business, results of operations and cash flows.
In addition, governmental action relating to these inherent risks and occupational hazards at other oil and gas companies could adversely impact the oil and gas industry and our operations. Governmental investigations and proceedings into drilling accidents may result in significant changes to existing laws and regulations and substantially stricter government regulation of offshore drilling rigs for particular companies and the industry as a whole. For example, following the explosion and related fire at the Deepwater Horizon offshore drilling rig in the United States in 2010, the United States government issued a six-month moratorium on all deepwater drilling in the outer continental shelf regions of the U.S. Gulf of Mexico and the Pacific Ocean, which was only lifted in 2011 when the national commission investigating the incident released its final report, with recommendations for new regulations. While we have not operated, and currently do not operate, any drilling rigs or HWUs in the U.S. Gulf of Mexico, amendments to existing laws and regulations or the adoption of new laws and regulations curtailing or further regulating exploratory or development drilling and production of oil and gas in the areas where we operate may be restrictive and require compliance measures that could have a material adverse effect on our business, operating results and financial condition.
5.1.5 The drilling services industry has historically experienced a shortage of talented and experienced personnel and management, and we face competition for qualified personnel and management for our business. 
Operation of our drilling services requires a large number of talented and experienced personnel and management with specialized skills and abilities. In the current drilling services market, talented and experienced personnel (in particular, engineers and drillers) and management are scarce, and employers must compete to secure their services. A general shortage of qualified personnel and management and the generally higher compensation offered by international firms in our markets may require us to raise salaries and benefits. Our inability to attract and retain a sufficient number of qualified personnel and management could have a material adverse effect on our business, results of operations and cash flows.
5.1.6 Our operations may be impacted by adverse weather conditions and natural hazards. 
Our operations may be impacted by adverse weather conditions, such as tropical storms, that may compromise our ability to carry out offshore drilling or workover operations, either in whole or in part. In addition, natural hazards, such as tropical storms, tsunamis and earthquakes, in the areas where we operate may damage our equipment, offshore structures, ports or other facilities used in our operations, and prolonged downtime in any of our equipment could result in disruption to our operations. Any of the foregoing could have a material adverse effect on our revenue, profits, financial position, business, results of operations and cash flows.
5.1.7 Regulation of greenhouse gas emissions and climate change could have a negative impact on our business. 
Some scientific studies have suggested that emissions of certain gases (primarily carbon dioxide and methane), commonly referred to as “greenhouse gases” , may be contributing to the warming of the earth’s atmosphere and other climatic changes. In response to such studies, the issue of climate change and the effect of greenhouse gas emissions, in particular emissions from fossil fuels, is attracting increasing attention worldwide. As a result, a number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. For example, pursuant to the Kyoto Protocol, adopting countries, such as Malaysia, are required to implement national programmes to reduce emissions of greenhouse gases.
Because our business depends on the level of activity in the oil and gas industry, existing or future laws, regulations, treaties or international agreements related to greenhouse gases and climate change, including incentives to conserve energy or use alternative energy sources, could have a negative impact on our business if such laws, regulations, treaties or international agreements lead to lower worldwide demand for oil and natural gas or otherwise result in reduced economic activity generally. In addition, such laws, regulations, treaties or international agreements could result in increased compliance costs or additional operating restrictions, which may have a negative impact on our business. In addition to potential impacts on our business directly or indirectly resulting from climate-change legislation or regulations, our business could also be negatively affected by severe weather patterns related to climate change. An increase in severe weather patterns could result in damage to or loss of our drilling rigs or HWUs, impact our ability to conduct our operations and/or result in a disruption of our customers’ operations.
5.1.8 We may be affected by a fundamental change in PETRONAS’ policies towards the oil and gas industry, 
PETRONAS’ current policies in Malaysia towards the oil and gas industry include the imposition of licencing requirements. Under these policies, only companies with valid licences may supply goods, products and services to the upstream sector of the oil and gas industry in Malaysia and the PETRONAS group of companies in the downstream sector. In addition, these PETRONAS policies also restrict the ability of suppliers of goods, products and services to operate in Malaysia. These restrictions can require, for example, foreign suppliers to use Malaysian content in their operations and to operate with a Malaysian partner or company either by forming a joint venture with the Malaysian partner or company or by designating the Malaysian partner or company as an exclusive agent representing the said foreign entity.
Our Malaysian business is primarily dependent on licences issued by PETRONAS for our domestic operations, both for drilling operations as well as for oilfield services. Any fundamental change in PETRONAS’ policies, such as a relaxation or liberalisation of licencing requirements for the provision of goods, products and services related to the oil and gas industry or permitting foreign suppliers to operate in Malaysia without restrictions (including without local content or a local partner or company), would have a material adverse effect on our business, results of operations and cash flows.
5.2 RISKS RELATING TO OUR BUSINESS
5.2.1 We are dependent on a limited number of major customers. 
We have historically derived a substantial amount of our revenue from a limited number of major customers, such as certain subsidiaries of PETRONAS and HESS. While we expect to continue to be awarded contracts from these major customers in the future, there may be changes in their operations, policies or business outlooks that could have a material adverse effect on our prospects. Approximately 67%, 93% and 89% of our total revenues were derived from our top two customers for the FYE 31 December 2010,2011 and 2012, respectively, and approximately 82% of our total revenues was derived from our top two customers for both the FPE 30 June 2012 and 2013. Our concentration of revenue sources exposes us to a variety of risks, such as the loss of substantial sources of revenue resulting from discontinuation of contracts by major customers due to our failure to fulfil contractual obligations, which could have a material adverse effect on our business, results of operations and cash flows.
5.2.2 We may be affected by compliance with government laws and regulations, including those relating to HSE, governing the industries in which we operate. 
Local, national and overseas government laws and regulations, including those related to HSE, govern the industries in which we operate. These laws and regulations govern, among others, HSE compliance, specifications related to project operations, specifications related to offshore drilling rigs and HWUs and requirements related to equipment operation. In addition, our operations rely on licences, permits and registrations to conduct business in the jurisdictions in which we operate, including, among others, our ability to secure drilling projects locally and globally. Even when we have obtained the required licences, permits and registrations, we are subject to continued review under applicable laws and regulations, the implementation of which is subject to change. Further, we have incurred, and expect to continue to incur, operating costs to comply with applicable laws and regulations, and we have made, and expect to continue to make, capital expenditures on an ongoing basis to comply with relevant laws and regulations.
There can be no assurance that we will be able to remain in compliance with applicable laws and regulations, that we will be able to obtain, maintain or renew required licences, permits and registrations or that we will not become involved in future litigation or other proceedings (or be held responsible in any future litigation or other proceedings) relating to HSE matters, the costs of which could be material. In addition, there can be no assurance that the adoption of new HSE laws and regulations, new interpretations of existing laws and regulations, increased governmental enforcement of these laws and regulations or other similar developments will not result in our being subject to fines and penalties or having to incur additional capital expenditures or operating expenses to upgrade, supplement or relocate our equipment and facilities.
Our failure to comply with all applicable government laws and regulations, or a change in the government laws and regulations governing the industries in which we operate, may disrupt our operations and could have a material adverse effect on our business, results of operations and cash flows.
5.2.3 We may not be able to procure inputs, including equipment, assembly parts and chemicals, from suppliers in a timely manner, on satisfactory terms or at all. 
Our operations are dependent on a sufficient supply of inputs, including equipment, assembly parts and chemicals, used in our provision of services. Some of these inputs, in particular certain technical equipment used in our offshore drilling rigs and HWUs, such as top drives, blowout preventers and related parts, are only available from limited suppliers. In addition, inventory management on our drilling rigs is an important aspect of our drilling operations due to the high cost of transporting spare parts and supplies by air, ship or other means on short notice to drilling rigs operating offshore. We cannot assure you that there will not be any substantial fluctuations in the supply and price of these inputs, that we will be able to secure sufficient amounts of these inputs from limited suppliers or that we will be able to adequately manage our inventories for certain inputs. In addition, if any of our suppliers fail to supply these inputs in a timely manner, on satisfactory terms or at all, and we are not able to obtain acceptable substitutes, our operations may be disrupted and our relationships with customers may be harmed. Any of these factors could have a material adverse effect on our business, results of operations and cash flows.
5.2.4 Some of our drilling services contracts may be terminated prematurely under various circumstances. 
Some of our customers have the right to terminate their drilling services contracts with us upon payment of early termination or other fees, but these payments may not fully compensate us for the loss of these contracts. Some of our customers may also terminate these contracts without payment of early termination or other fees under various circumstances, typically including, but not limited to, delayed commencement of operations or mobilization of our drilling rig, sustained periods of non-performance or deficient performance by our drilling rig or equipment, prolonged periods of downtime due to force majeure events and other operational issues. Many of these circumstances are beyond our control. In this regard, in 2009, PCPP Operating Company Sdn Bhd terminated its contract with us for provision of NAGA 2 before we took delivery of that drilling rig. We cannot assure you that our customers will not terminate some of our contracts prematurely, or that we will be able to secure new contracts in a timely manner, on satisfactory terms or at all, any of which may result in periods where our assets are underutilized and unable to generate revenue. Any of the foregoing could have a material adverse effect on our business, results of operations and cash flows.
5.2.5 We cannot provide any assurance that our drilling services contracted backlog will be ultimately realized. 
As at 30 June 2013, the contracts that make up our drilling services contracted backlog totaled approximately RM1,471.3 million. Our drilling services contracted backlog, or future contracted revenues, reflects firm commitments represented by signed drilling services contracts. It has been calculated by multiplying the contracted operating day rate by the number of days in the remaining contract period, assuming full utilisation throughout the relevant period. The amount of actual revenues that we earn and the actual periods during which our revenues will be earned may be different from our contracted backlog disclosed in this Prospectus due to various factors Factors that may cause our actual revenues to be lower than contracted backlog include downtime caused by scheduled and unscheduled repairs and maintenance, upgrades and weather and other operating factors. In some of our contracts, our customers have the right to terminate their drilling services contracts with us upon payment of early termination or other fees, but these payments may not fully compensate us for the loss of these contracts. Our inability or the inability of our customers to perform under our or their contractual obligations may have a material adverse effect on our financial position, business, results of operations and cash flows.
5.2.6 Our insurance coverage may not be adequate to cover all losses or liabilities that may arise in connection with our operations. 
We maintain insurance at levels that we believe are customary in the businesses in which we operate to protect against various losses and liabilities. We maintain insurance to cover, among others, damage to our equipment, infrastructure and facilities, business interruption risks and workers compensation. There can be no assurance that our insurance will be adequate to cover all losses or liabilities that might occur in our operations in the future. The operation of our facilities involves inherent risks and occupational hazards, and if we were to incur a significant loss or liability for which we were not fully insured, it could have a material adverse effect on our business, reputation, results of operations and cash flows.
Our insurance coverage is also subject to periodic renewal. If the availability of our insurance coverage is reduced significantly for any reason, we may become exposed to certain risks for which we are not and/or could not be insured. Further, if premium levels for the insurance coverage required for our operations increase significantly, we could incur substantially higher costs for such coverage or may decide to reduce the coverage amount, either of which could have a material adverse effect on our business, results of operations and cash flows.
5.2.7 As we continue to expand internationally, we are increasingly susceptible to legal, regulatory, political, economic and competitive conditions outside of Malaysia, as well as operational risks different from those that we face in Malaysia. 
We operate internationally and expect to continue expanding our business activities outside of Malaysia. We are required to comply with foreign laws and regulations in the countries in which we operate including, but not limited to, trade laws, investment sanction laws, environmental laws, tax laws, industry laws and capital control regulations. We conduct country risk assessments and in-country risk management to ensure that we understand the legal and regulatory operating environment and the political, economic and competitive conditions of a particular country, both when commencing work in that country and on an ongoing basis. We cannot ensure, however, that local legal, regulatory, political, economic or competitive developments in the countries in which we operate will not have a material adverse effect on our business, financial condition or results of operations.
We have expanded our business through investments and projects outside of Malaysia, and we may continue to make similar investments or undertake similar projects in the future, including seeking opportunities in promising oil and gas exploration markets, such as Vietnam, Indonesia, Thailand and Myanmar. These transactions subject us to different risks than those we face in growing our operations in Malaysia, including foreign legal and regulatory risks associated with cross-border transactions and operational risks related to managing transactions outside of Malaysia, such as those arising from dealing with entrenched domestic competitors in overseas markets and our relative lack of familiarity with the rules and regulations in other jurisdictions. These risks may complicate our efforts to complete these transactions and impede our efforts to integrate the overseas businesses into our global operations. Addressing these risks may require us to devote substantial management resources, which could distract our management from overseeing our ongoing operations. Any failure by us to address these issues could delay or prevent us from completing any future overseas expansions or could make such transactions substantially more expensive to complete than we had anticipated, any of which could have a material adverse effect on our business, tinancial condition or results of operations.
5.2.8 We are dependent on PETRONAS-issued licences used by our drilling services and oilfield services businesses and on licences used by our oilfield services business in connection with OCTG threading, inspection and repair services focused on premium connections. 
For activities undertaken by our drilling services and oilfield services businesses in Malaysia, we are dependent on licences issued by PETRONAS. These licences allow us to participate in bidding exercises and/or to be considered for projects in the Malaysian oil and gas sector. In addition, in our oilfield services business, we offer OCTG threading, inspection and repair services focused on premium connections used in high-end and complex wells. We have secured the necessary licences from key international and local licensors in the threading industry that permit us to provide threading, inspection and repair services in accordance with each licence’s scope of services, tenure and other specifications.
Our licences are subject to periodic renewal, and we have been able to renew our licences in the past. However, there can be no assurance that these licences will be maintained or renewed upon expiry in the future. In addition, there can be no assurance that we will be able to obtain new licences to grow our business.
Failure to obtain, maintain or renew our PETRONAS-issued licences wouid prevent us from being able to provide our drilling and oilfield services to the Malaysian oil and gas sector. Failure to obtain, maintain or renew our OCTG threading, inspection and repair-related licences could result in the loss of customers requiring such licenced services and restrict our access to the more premium segments of the OCTG threading, inspection and repair market. Any of these developments could have a material adverse effect on our business, results of operations and financial condition.
5.2.9 We may not be able to grow successfully through future acquisitions or to effectively integrate the acquired businesses. 
Our business strategy has included, and will continue to include, growth through the acquisition of other businesses and assets. We may not be able to continue to identify attractive acquisition opportunities or successfully acquire identified targets on favourable terms. Currently, competition for acquisition opportunities is limited but it may escalate, increasing our acquisition cost or causing us to refrain from making acquisitions. We may be required to incur substantial indebtedness to finance future acquisitions, with additional debt service requirements imposing a burden on our operations and financial condition. In addition, we may not be successful in integrating our current or future acquisitions into our existing operations, which may result in unforeseen operational difficulties or weaker financial performance and may require a disproportionate amount of management attention.
5.2.10 Repair and maintenance of our key assets, equipment and facilities may require substantial expenditure, and breakdown, non-performance or loss of the key assets, equipment and facilities on which we are dependent may cause us to incur losses. 
Our operations are dependent on the operating efficiency and reliability of our key assets, equipment and facilities in terms of operational worthiness and compliance with safety standards, and we are required to maintain our key assets (such as our offshore drilling rigs and HWUs), equipment and facilities through scheduled and unscheduled repair and maintenance. Our repair and maintenance programme is an important part of our business operations and involves substantial expenditure and results in loss of opportunity from downtime of our equipment and facilities. Repair and maintenance performed after any breakdown of our key assets, equipment and facilities can be costly and time-consuming and, in certain cases, can be more costly and time-consuming than we anticipated, any or both of which could result in significant tangible and intangible losses to us.
Unexpected breakdowns, non-performance or loss of key assets, equipment and facilities are by their nature unpredictable. In the event of downtime or loss of our key assets, equipment and facilities, we may incur additional costs and losses arising from the disruption of our workflow and scheduled activities. Rectification of breakdown or non-performance of this type, depending on its severity, may also require replacement or repair of key components, the procurement of which may entail long lead-times. Rectification on the affected key asset, equipment and facilities may require us to incur substantial expenditures, which may result in the affected key asset, equipment and facilities being out of service and unable to generate revenue for extended periods of time. In this regard, in 2012, our subsidiary UOS experienced breakdowns of two CNC lathe machines, due to the failure of certain machine components which resulted in the inability of the machines to achieve the required level of accuracy in production. These breakdowns resulted in downtime of six months in 2012 and we believe this resulted in the loss of revenue amounting to approximately RM3.3 million due to repairs that required more time than we anticipated. As we are also dependent on a small number of offshore drilling rigs and HWUs to provide our services, we may incur losses as a result of service disruption, damage to any of our drilling rigs or HWUs or loss of any of our drilling rigs or HWUs. For instance, in November 2013, NAGA 3 is expected to undergo unscheduled repair work on a few of its ballast tanks for approximately three weeks. While we do not expect these repairs and their associated costs to have any impact on our contractual obligations under NAGA 3’s current contract with PETRONAS Carigali or our financial performance for the FYE 31 December 2013, we cannot assure you that unscheduled repairs in the future would not have a material adverse effect on our business. results of operations and cash flows.
The occurrence of any of the above developments may potentially disrupt the operation of our affected key asset, equipment or facilities and may result in our being unable to meet our contractual obligations with our customers or may otherwise have a material adverse effect on our business, results of operations and cash flows. In addition, if we were to dispose of or lose any of our key assets, equipment or facilities, in particular our offshore drilling rigs and HWUs, we may not be able to secure a replacement for such key asset, equipment or facilities in a short timeframe on satisfactory terms or at all. The loss of such key asset, equipment or facilities may have a material adverse effect on our business, results of operations and cash flows.
5.2.11 We may not be able to effectively manage our present or future assets and joint ventures.
We have previously expanded our business through acquisitions, investments and joint ventures. Acquisitions, investments or joint ventures may require us to make significant cash commitments and incur substantial debt. Further, problems may arise preventing the effective integration of expanded operations and the ability to maintain key pre-acquisition relationships.
We may not be able to effectively manage or execute our strategies with respect to our present or future assets and joint ventures. Our control over these assets and joint ventures is generally subject to the terms of applicable agreements and arrangements.
In addition. our partners in these assets and joint ventures may:
(i) have economic or business interests or goals that are inconsistent with ours;
(ii) take actions contrary to our instructions or requests or contrary to our policies or objectives; or
(iii) be unable or unwilling to fulfil their obligations under the applicable agreement or arrangement or to provide anticipated levels of support.
A disagreement, depending on its severity, with any of our partners could affect our ability to develop or operate the respective asset or joint venture, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
5.2.12 We are exposed to the credit risk of our customers and counterparties with whom we do business. 
Adverse economic conditions affecting, or financial difficulties of, our customers and counterparties could impair the ability of our customers and counterparties to pay for our services or fulfill their contractual obligations or cause them to delay those payments or obligations. We depend on our customers and counterparties to remit payments on a timely basis. Any delay or default in payment could have a material adverse effect on our financial condition, results of operations and cash flows.
5.2.13 Our controlling shareholder may have interests that may not be aligned or may conflict with those of our other shareholders.
Upon the successful completion of our IPO and assuming the Over-allotment Option is not exercised, UMWH will own 61 %of our enlarged issued and paid-up share capital and will remain our controlling shareholder. As our controlling shareholder. other than in respect of certain votes regarding matters in which it is an interested party and must abstain from voting under the Bursa Securities LR, UMWH would be able to influence the approval of any corporate proposal or transaction requiring a shareholders’ resolution under the Act, including the approval of all final dividends as well as the election and the appointment of our directors. The interests of UMWH may differ from the interests of our other shareholders.
5.2.14 Global capital and credit market issues could negatively affect our liquidity, increase our costs of borrowing and disrupt the operations of our suppliers and customers. 
Global capital and credit markets have experienced extreme volatility, disruption and decreased liquidity in recent years, making it more difficult for companies to access capital and credit markets. While there have been periods of stability in these markets, the environment has become more volatile and unpredictable. Recently, there has been p Articular focus on the potential for sovereign debt defaults and banking failures in Europe. Volatility in global financial markets has added to the uncertainty of the global economic outlook and a number of countries are experiencing slow economic activity. In addition, we remain subject to the possibility of reduced access to, and increased costs of, funding, a slowing down in the activity of our business partners or other adverse impacts on entities with whom we have business dealings.
Our business is capital intensive, requiring drilling rigs, HWUs and specialized equipment to provide our services, and may involve acquiring and/or upgrading our equipment and facilities, including our offshore drilling rigs and HWUs. We depend on stable, liquid and well-functioning capital and credit markets to fund our future projects and development, and failure to obtain sufficient financing on a timely and satisfactory basis could cause us to forego acquisitions or opportunities to tender for certain projects. If market conditions deteriorate due to economic, financial, political or other reasons or if currently low interest rates were to increase, our ability to obtain bank financing and access the capital markets in the future may be adversely affected. We cannot assure you that any required additional financing, either on a short-term or long-term basis, will be made available on terms satisfactory to us or at all. If we are unable to obtain adequate funding when needed or obtain funding on favourable terms, we may find it difficult to meet our capital needs, take advantage of business opportunities or respond to competitive pressures. Any or all of these developments could have a material adverse effect on our business, financial condition, results of operations and cash flows.
5.2.15 We are exposed to foreign exchange risk arising from changes in the exchange rates between the functional currencies of companies in our Group and other currencies. 
We are exposed to foreign exchange risk. As at 31 December 2010,2011 and 2012, approximately 9%, 7% and 11%, respectively, of our trade receivables and approximately 22%, 29% and 12%, respectively, of our trade payables were denominated in currencies other than the functional currency of the relevant company in our Group. As at 30 June 2013, approximately 24% of our trade receivables and approximately 34% of our trade payables were denominated in currencies other than the functional currency of the relevant company in our Group. Many of the companies in our Group use USD as their functional currency, but our combined financial information included in this Prospectus is in RM, and our future reporting of financial information will be in RM. The RM operates on a managed float basis, and an appreciation of the RM against other currencies may have a material adverse effect on our financial performance and financial position because we may incur foreign exchange losses and foreign currency translation losses. In addition, changes in currency exchange rates may result in significantly higher domestic interest rates, liquidity shortages and capital or exchange controls, which in turn could lead to a reduction of economic activity, economic recession, loan defaults, lower deposits and an increased cost of funds Changes in the exchange rate between the RM and other currencies, in particular the USD, could have an adverse impact on our results of operations and financial condition, including as a result of translation differences when converting other currency amounts to RM for financial statement purposes.
5.2.16 The use of derivative instruments, such as currency forward contracts, may not fully hedge the risks of price fluctuations. 
We may use derivative instruments, such as currency forward contracts or other similar transactions, in the ordinary course of our business to hedge the risks of adverse fluctuations in foreign exchange. We make limited use of currency forward contracts, as most of our payments are naturally hedged by our revenues in the same currencies. As at 31 December 2010, we had no outstanding forward contracts. The notional values of our outstanding forward contracts as at 31 December 2011 and 2012 and 30 June 2013 were RM16.2 million, RM42.8 million and RM10.1 million, respectively, and as at these dates, we had no other outstanding derivative instruments. However, because foreign exchange markets are volatile, we may not be able to fully hedge the future gains or losses with these instruments against the corresponding change in foreign exchange rates. Any severe or wide fluctuation in foreign exchange rates could have an adverse effect on our business, financial condition and results of operations if we are unable to manage such fluctuations effectively through these derivative instruments.

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