WHEN it was announced early this year that Permodalan Nasional Bhd (PNB) would inject an estimated RM750mil for its portion of UMW Oil & Gas’ (UMW-OG) RM1.8bil rights issue, the oil and gas company’s share price stood at 88 sen.
Since then, the share price had dived by about 65%, hitting a 52-week low of 30 sen on Thursday.
The company’s market capitalisation has also fallen to RM670mil, from RM1.89bil at the end of 2016.
The current market capitalisation is also lower than the amount of cash PNB alone, as its major shareholder, will be pumping in for the impending rights issue.
This situation then raised the question of whether raising RM1.8bil via a rights issue is still a feasible option for the company, and whether it will be able to get the support it needs from shareholders.
When the question was posed to group president Rohaizad Darus, he said that the planned rights issue was still on track as the group has the support of PNB, which has pledged to take up not only its portion of the rights issue but also the excess rights shares not taken up by other entitled shareholders.
In a filing to the stock exchange on June 9, 2017, UMW-OG said it had received the undertakings and a subscription letter from PNB.
At this point, the PNB’s portion was estimated at over RM800mil.
This way, regardless of the response from other shareholders, UMW-OG will still get the RM1.8bil it needs to raise, Rohaizad says.
The group needs the funds mainly to reduce its debts, which are currently at about RM4.1bil.
Rohaizad says the exercise will reduce the group’s debt to RM2.3bil, and the gearing level from its current 1.81 times to 0.56 times.
Of the total RM1.8bil raised via the rights issue, the group plans to use RM1.5bil to pare down debt while the balance will be used as working capital.
Based on its latest quarterly report, UMW-OG’s short term borrowings stand at RM1.5bil while long term borrowings are at RM2.18bil, totalling RM3.68bil.
It also has short-term borrowings and long-term borrowings in US dollars of US$338.9mil and US$497.12mil respectively.
Rohaizad says the fund-raising is crucial to ensure that UMW-OG can weather the current market conditions and focus on future expansion.
He tells StarBizWeek that the rights issue will ensure that the company is able to move forward and achieve its objectives.
“It will allow us to weather the current situation and expand in the future,” he says.
The rights issue was first announced in January this year as part of larger plan that would see its parent company UMW Holdings Bhd exit its oil and gas business which had been dragging its profits down.
The parent company had planned to exit the business through a series of corporate exercises, including a dividend in specie and a capital injection by PNB into a new enlarged O&G outfit that would also have Ekuiti Nasional Bhd (Ekuinas) as a shareholder. Under the exercise, UMW Holdings said it would distribute its 55.7% stake in UMW-OG to shareholders, after which it would takeover Ekuinas’ 42.3% stake in Icon Offshore Bhd, and later acquire Orkim Sdn Bhd.
At the same time, it was said that the enlarged UMW-OG would undertake a rights issue amounting to RM1.8bil, of which part of the proceeds would go towards the purchase of Orkim.
Later on May 4, the plan to acquire Icon Offshore and Orkim was called off, with UMW-OG citing capital constraints and uncertainties in the industry.
It said, however, that it would proceed with the planned RM1.8bil new rights shares issuance, with its main shareholder, PNB agreeing to underwrite the entire fund-raising exercise.
Even at this point, UMW-OG’s share price was still at 69 sen.
Following the termination of the deal to acquire Offshore and Orkim, Rohaizad Darus was quoted as saying that it was a “blessing in disguise” to be left to remain in its original form, as the pace of the industry’s recovery was still unclear.
One of the many companies which have suffered due to the low oil price environment, UMW-OG saw its net losses widen to RM104.11mil in its most recent quarter ended March 31, 2017, from a net loss of RM65.08mil the previous year.
Its revenue for the quarter was also 15.3% lower at RM74.28mil, with the group citing softer time charter rates from drilling contracts and weaker demand for oilfield services. The company said in the notes accompanying its financial statements that lower time charter rates and reduced foreign exchange gains on translation resulted in a higher loss for the latest quarter.
UMW-OG said the drilling services segment contributed a revenue of RM71mil or 95.6% of the total revenue of RM74.28mil, which was a decrease of RM10.3mil or 12.7% from the RM81.3mil recorded in the same quarter a year ago.
The oilfield services segment contributed a revenue of RM3.3mil or 4.4% of the total revenue in the first quarter of 2017.
This was a reduction of RM3.1mil or 48.4% over the RM6.4mil registered in the same quarter of 2016.
For the financial year ended December 31, 2016, it recorded RM321mil in revenue and net losses of RM1.18bil after making a massive RM780mil impairment in the fourth quarter.
However, the things are picking up as the group expects to return to profit next year, with its drilling rigs returning towards full utilisation.
He says contracts had recovered, with rig utilisation climbing to 71% from 20% in the fourth quarter of 2016, as oil firms resumed spending on exploration and production.
In its most recent quarterly report, the group said all seven jack-up rigs were contracted, five of which were income-generating and the remaining two set to start work by end of June 2017.
As such, it said its asset utilisation rate was expected to improve from the current 71% to 100% by middle of 2017.