I went back to the annual reports - as I guess should be done in...

I went back to the annual reports - as I guess should be done in times of debate/discussion.

Note 28 of 2012 annual report outlines the relationship between EWI and EWC - essentially a non compete agreement in the energy and power sector in Asia/Pacific. So that would cover Sri Lanka and PNG but not Jamaica.

EWC has paid EWI between $1.5m - $2.4m pa between 2008-2012 for managerial services - key personal, premises in HK and all that. The 2008 -2011 annual reports explicitly state EWI has not been paid for business development. The management fee doubled in 2012 and was terminated after 9 months.

EWC paid Slipform $32m (2008,2009, 2010) for the FEED work for the LNG plant. Given the equipment was ready and waiting to be delivered in 2010, this is probably fair enough. I am not sure that BPMigas/EWC delays can be reason enough to withhold payment to Slipform despite slipform having the same directors and shareholders as EWC. The next question is whether $32m on a $720m (2 tonnes at $360m each) project is excessive for a FEED. ie 4.5%. -> I don't know, it does not seem too far away from the ballpark to me, but others who know better may disagree.

EWC paid Slipform $0.5m for the FEED on the upgrade to the gasfield facilities in 2009.

EWC paid Slipform $3.9m for the FEED on the 3 expansions to the Sengkang power station in 2009 and 2012. There was a payment agreed between PTES and Slipform for another $0.8m, but it was not disclosed as to whether it has been paid. This is circa 2%-3% - probably because there is some overlap between the 3 turbines.

EWC paid Slipform $3.9m for the FEED for the Philippines in 2009, 2010, 2012 (note this fixed fee increased from $1.8m to $3.9m from 2007 to 2012). This is about 3%.

EWC paid Slipform $5.2 of the $5.5m owing in 2012 for the FEED for the upgrade to the Gilmore plant. This is about 8%.

However in 2012 Elliot got more active:

CEPA (95% owned by SE) took over the O&M contract for PTES for the 315MW plant at $16-$18m pa.

Slipform (CEPA and Kerbridge) got the $70m construction contract for Gilmore. The amount to run on this contract as $60m in June 2012

Slipform et al got the $130m contract to build the Philippines LNG hub. There was $118m to run on this contract in June 2012.

Slipform contracted with PTES to provide the steam turbine for $58m. No payment had been made at June 2012. Slipform got the remainder of the contract for the gas turbine of which $4m was outstanding in June 2012.


Slipform (CEPA, Kerbridge)got the contract to complete the work on the LNG plant at Keera - balance to run at June 2012 was $142m.

I have ignored the land leases in Sydney and in the Philippines.

I note that Slipform is taking the head contractor role - there are bunch of subbies behind them.

It will be interesting to compare these numbers to the numbers released within the month.

Addressing the idea that the management could easily destroy value and take the assets cheaply - I am not all that convinced because:

1. all the operating assets are ringfenced, have non-recourse debt, and equity owned by EWC - it seems unlikely that management will want to trade these into insolvency as the banks take the first slice. If there is anything left it goes to creditors (perhaps, but unlikely to be slipform), then to EWC. This seems unlikey given the new project finance facility to PTES and the nature of PSC and PPA's.

2. there is no corporate level debt outstanding - the corporate debt facilities are cover by restricted cash.

3. EWC might be on the hook for construction contracts for the assets not yet operating - however most of these are paid for in cash raised from share sales and from cashflow. The excess of construction cost over and above cash would be pretty small. For example in 2012 EWC had approx $380m outstanding in construction contracts, it spent $154m this year, has another $128m in the bank, and generated $60m in cashflow - easily covering the cost of those projects - however $50m of the cash may be from Standard Chartered PE which may be held for the power station as opposed to the lng hub - the cost of which is not included. The power station is expected to cost $150m at 60% LTV debt, they could borrow $90m and need $60m equity for that. This doesn't appear to be a stretch.

4. if slipform started a creditors motion to liquidate EWC to recover the amounts owing them, the outcome depends what assets slipform has registered a charge over and the circumstances leading to the default on payment. The non related party directors would be obligated to dispute the claim should there be some malfeasance along the way.

Once the claim is established the receiver (who has the same responsibilities as a director) would look pretty closely at the elements of close control, how the entity could trade its way out of the situation, the options for asset sales or a capital raise, any recoveries against slipform et al. I am also pretty sure that any restructuring would end up at a shareholders vote - where EWI/slipform directors cannot participate.

What it might do is smash the share price and leave investors open to dilution - which would need to be approved by shareholders as part of the restructure.

I think this process is far from nice and easy - but it is Australia, and is regulated by the ASIC so who knows.

Anyway just some thoughts for discussion.