Stake disposal to beef up Yinson’s cash position

AmInvestment prefers companies with stable and recurring earnings such as Dialog Group and Yinson

PETALING JAYA: Oil and gas (O&G) services provider Yinson Holdings Bhd’s move to dispose of the 26% stake in a Ghana-based floating production, storage and offloading (FPSO) unit will strengthen the company’s cash position that can be used for expansion, analysts said.

The disposal of the stake to a consortium of Japanese companies is valued at between US$104mil and US$117mil.

Two days ago, the O&G outfit entered into a heads of agreement (HoA) with the consortium comprising Sumitomo Corp, Kawasaki Kisen Kaisha Ltd, JGC Corp and the Development Bank of Japan, for the partial equity stake sale in its wholly-owned FPSO John Agyekum Kufuor (JAK), currently deployed at Ghana’s offshore Cape Three Points block.

Kenanga Research, which reiteratedan “outperform” call on Yinson, noted that the stake disposal was a “recycling of capital”.

“We believe the sale of its 26% stake in FPSO JAK will help to monetise the good quality contract in hand and augment its war chest for the future. More importantly, it marks the maiden collaboration with solid Japanese companies, which could be potential strategic partners in future bids.

“Yinson is estimated to record a one-off gain of US$50mil to US$60mil via the stake sale. We reckon the cash proceeds received will serve as working capital, equity fund for future projects and also reserves for consistent dividend distribution upon formalisation of dividend policy,” said Kenanga Research in a note.

Echoing a similar stance, Maybank IB Research said that the selling price for the 26% equity interest “is fair”, at a 2% discount to its net present value.

“In the disposal of the stake, Yinson gets to de-risk by recouping part 45% of its equity value on this project. The company will also be able to de-gear by lowering its proforma net debt by 18%. “In addition, this consortium can potentially offer Yinson access to a new pool of strong capital partners, vessels for future conversion bids and options on lower refinancing rates,” said the reseach house.

Meanwhile, UOB Kay Hin Research, which was neutral on the transaction, said the divestment was part of the company’s ongoing plans to achieve sustainable capital growth. “We understand that the divestment allows the Japanese investors a share in the profits from the bareboat charter, but Yinson still owns the offshore and marine value entirely. If the FPSO is awarded further contract values, the partners’ participation terms will need to be revised.

“Even though the transaction is net present value-neutral, the terms are still favourable to Yinson because it allows a fast-track return of equity from its largest FPSO contract, implying a potential internal rate of return of more than 30%,” said UOB Kay Hian Reseach.