Bumi Armada not looking into equity fund raising

Other monetisation plans are at advanced stages, which leads to UOB Kay Hian Research

KUALA LUMPUR:  The management of Bumi Armada is not considering equity fund raising but instead it is mulling asset monetisation, such as selling floating production storage and offloading (FPSO) stakes to partners, setting up private trusts (infrastructure funds) or tapping into an available debt facility of US$1.5bil. 

UOB Kay Hian Malaysia Research said on Monday these plans have been worked out for more than a year and are in advanced stages. 

“We believe that due to the awareness that some of these plans may see near-term conclusion, Bumi Armada may have reached positive negotiations with its bankers to renegotiate or extend the timeline for the corporate debt repayment (October 2018 tranche),” it said.

To recap, the research house said the oil and gas services provider was not looking into a  cash call as the group would avoid new projects in the near term.

Other monetisation plans are at advanced stages, which leads to UOB Kay Hian Research’s belief that debt repayments can be positively renegotiated.

“We cut our forecasts and valuations to assume potential impairment and earnings risk in OMS. Maintain Buy with a lower target price of 66 sen although we advise wait-and-see for upside in 2019 horizon,” it said.

The research said various concerns were behind the share price decline. 

Despite achieving final acceptance for FPSO Kraken, Bumi Armada’s share price fell below its previous low in 2016 (when the company reported core quarterly losses) on sell-down from foreign and domestic funds. 

The research house said this was due to several concerns or the elephants in the room: a) default risks on a weak balance sheet, b) equity fund raising if it wins a contract now, and c) further earnings disappointment.

“While there are no major concerns on debts at the project (FPSO) level, investors are monitoring the progress of refinancing the US$500bil corporate debt payable in three tranches from October 2018.

“There are several projects where Bumi Armada’s opted to submit technical proposals only, and avoiding commercial submissions at this juncture until it strengthens its balance sheet. 

“We believe the FPSO projects that are deemed as high priority for BAB are the Zabazaba (Eni, Nigeria) and the KG-DWN-98/2 (ONGC, India). These are large projects with capex at more than US$1bil,” it said.

Zabazaba will take some time to reach final investment decision as the legal process in relation to corruption charges on Eni has been resolved. 

The group, which was deemed as a frontrunner for the job, expects the Zabazaba award timeline in late-2019. 

For any Indian projects, the group does not expect any near-term contract flows as the country may face policy changes after the 2019 elections. Overall, these should alleviate investor concerns as winning a project immediately at this time is perceived as negative for the group.