Medserv publishes prospectus for €20 million debt programme

Updated 21 August

Oil logistics group Medserv plc has filed its prospectus for a €20,000,000 secured and guaranteed debt programme, with Rizzo, Farrugia stockbrokers mandated to act as sponsor.

Medserv's prospectus is valid for a period of 12 months, expiring on 12 August 2014.

The company's obligations under the notes, including the payment of principal and interest to note holders, shall be guaranteed by Medserv Operations Limited, a wholly owned subsidiary of the company.

As guarantor, the company is a private limited liability company and will provide a general hypothec and a special hypothec over the emphyteutical rights it holds over its Maltese base, situated at the Malta Freeport.

The security granted by the guarantor will be held by HSBC Bank Malta plc on trust for the benefit of note holders.

Medserv plc is a holding company currently owning 100% of Medserv Libya Ltd; 100% of Medserv East Africa Ltd; 100% of Medserv Operations Ltd; 100% of Medserv International Plc, which in turn owns 60% of Medserv Misurata FZC; 100% of Medserv Eastern Mediterranean Ltd, which in turn owns 55% of Medserv (Cyprus) Ltd; and 100% of Medserv Italy Ltd, which in turn owns 50% of Medserv Italia S.R.L.

The firm declared an interim 2013 group turnover of €3,703,489 at the end of June 2013, compared to €2,545,888 registered in the comparative period, an increase of 45%.

Pre-tax profits returned to a healthy €566,485, compared to a loss of €680,589 sustained in the six-month period ended 30 June 2012. After accounting for taxation, the net profit amounted to €504,450, compared to a profit of €9,765 for the six-month period ended 30 June 2012.

The group's results for the first half of the year are in line with forecasts, with turnover substantially higher than that of the comparative six-month period, reflecting the continuing resurgence in turnover which commenced in the second half of 2012.

Medserv's operations remain dependent on emerging markets, and the group's prospectus warns that they present "economic and political conditions which differ from those of the more developed markets, thereby possibly resulting in less social, political and economic stability."

The group said its operations may be affected by political and diplomatic developments and other restrictions on the repatriation of capital. This risk is a result of the conflict in Libya.

"The conflict and the aftermath thereof, including internationally imposed sanctions, has negatively affected the group's operations in Libya, however the impact was limited and partly offset by the diversion of business to Malta and increased diversification of operations. There can be no guarantee that lost business in Libya will be brought back to pre-conflict levels," Medserv warned.

The oil and gas offshore exploration industry is dominated by a limited number of international oil companies (IOCs), the majority of which have an ongoing business relationship with the Medserv Group. In particular, the Mediterranean region is dominated by one major IOC, in respect of which the Medserv Group generates substantial business.

The group generated a turnover of €15.6 million in 2008, an increase of 235% over 2007, and revenues of €17.5 million in 2009.

But the financial crisis in 2008 saw the demand for oil plunging rapidly as consumption diminished drastically, with exploration projects postponed and even cancelled. The impact on Medserv's operations was partly mitigated by the fact that the exploration costs and the quality of the crude oil in Medserv's main market still made the Central Mediterranean region one of the most competitive areas for oil companies to operate in.

The BP incident in the Gulf of Mexico in 2010 had a direct effect on the group, as all offshore operations due to start in the latter part of the year were delayed. Revenues dropped by 33% that year, to €11.7 million.

In the first half of 2011, Medserv saw its operations in Misurata come to a halt as the civil war in Libya affected the group's key market negatively. While the Misurata warehouse was damaged, no client material was damaged or stolen.

Throughout the conflict, the group made its Malta base available as a humanitarian lifeline for the Libyan people. In the second half of the year, Medserv was awarded contracts in connection with restarting oil and gas production in Libya, which were halted during the uprising. These were administered through the Malta base and positively affected earnings in the last few months of 2011, resulting in revenues for the year of €9.2 million.

During 2012, production levels of oil and gas in the Libyan market from existing fields reached pre-war levels, though Medserv continued to observe an absence of oil exploration activities off Libya. As a result, the group generated revenues of €6.7 million, a decrease of 27% over 2011.

In the first half of 2013, the group registered a 45% increase in turnover, while the Malta base continued to be the group's main revenue generator. The base has undertaken a number of new types of engineering operations, in addition to the routine activities carried out.

Medserv Misurata FZC continues to show signs of returning to operations and has tendered for an offshore drilling project by a French company, from which a response is currently awaited.