IF anybody thought the worst was over for Bumi Armada after it sailed through a brutal downturn in the oil and gas industry three year ago, they were proven wrong last week.
An internal memo from executive director and group chief executive officer Leon Harland painted a sombre picture of the oil and gas company that is controlled by low-profile billionaire T. Ananda Krishnan.
Harkland told employees that the company had not made much progress with regard to improving its financials. Cashflows are tight and it has limited its efforts to pursue new work.
He further stated that the financial situation has caused the group to be selective in pursuing new jobs and it hopes to complete its refinancing of a US$500mil facility by the first quarter of next year.
The message to employees supposedly triggered the stock to fall to an all-time low.
At 15.5 sen per share, Bumi Armada’s market capitalisation is only RM910mil. Its value was RM13.5bil in May 2014, just before oil price started its slippery slope down from its high of US$120 per barrel. Even at the nadir of oil price crisis when crude went below US$30 per barrel in early 2015, Bumi Armada fetched a valuation of almost RM5bil.
The value destruction is huge. Ananda’s 34.9% stake is now worth only RM318mil, compared with more than RM1.75bil three years. Investors such as the Employees Provident Fund, Permodalan Nasional Bhd and Kumpulan Wang Amanah Pencen are sitting on paper losses.
It is more painful for those who subscribed for Bumi Armada’s rights issue that was done at RM1.35 per share in October 2014. The company raised RM1.9bil which was used mainly to expand its business.
In 2015 and 2016, Bumi Armada’s capital expenditure was high, which stretched it finances.
Bumi Armada recent fall started with the company making another heavy provision in its third quarter results released two weeks ago. It made impairments to the tune of RM1.04bil, its second major provision in three years.
The provisions were for a floating, production, storage and offloading (FPSO) vessel called Armada Kraken that was finally deployed to an oil and gas field in North Sea. The other part of the provision came for its fleet of offshore support vessels.
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