CIMB Research retains Add for Bumi Armada, TP 70 sen

Commenting on the results, chief executive officer Leon Harland said:

KUALA LUMPUR: CIMB Equities Research is retaining its Add recommendation for Bumi Armada with an unchanged sum-of-parts based target price of 70 sen with the key rerating catalyst being closure in the refinancing negotiations.

The research house said on Friday Bumi Armada's difficult debt refinancing talks with banks were ongoing and “we reckon that the probability of banks calling a default is low”.

Other positives include the potential to secure a new sub-sea contract at the Caspian Sea, and the outcome of the Australian court hearing by May 2019F.

CIMB Research said Bumi Armada is continuing its negotiations for an extension to the May 2019F repayment deadline for US$380mil worth of corporate term loans with a consortium of banks. 

These loans were originally taken to fund the acquisition of offshore support vessels (OSV) and to repay the project financing of the prematurely-terminated Armada Claire FPSO contract. 

The research house said Bumi Armada hopes to complete the negotiations by 1Q19F but it is unable to offer any insight to the eventual outcome as the ball is in the banks’ court to decide on the terms of the extension, if any. 

“In our opinion, the probability of the banks calling a default on the loans and commencing liquidation proceedings against Bumi Armada  is small, because the US$380mil debt is unsecured, and most of Bumi Armada ’s valuable Floating Production Storage Offload (FPSO) assets and cashflows are ring-fenced to service their respective project finance debt. 

“We think it may be more constructive for the banks to restructure the borrowings, and allow Bumi Armada  to work through various initiatives to raise cash,” it said. 

CIMB Research said the Armada Claire court case will start soon.  The first court hearing for the suit against Woodside is on Feb 18, 2019, and Bumi Armada’s legal advisors have said that the entire process, including the appeals hearing, will take a maximum of three months (eight weeks for the Supreme Court hearing, and three weeks for the Court of Appeal hearing). 

“If all goes well, we should know the outcome of the case by mid-May 2019F. Bumi Armada is suing Woodside for US$283.5mil, and if Bumi Armada wins the case, the restitution will go a long way towards substantially resolving Bumi Armada's short-term debts,”  it said.

The Armada Installer and Armada Constructor finished their employment at the Caspian Sea for Lukoil in June and October 2018, respectively, and have been unemployed since then.

Bumi Armada had submitted a bid to another client to employ both vessels between 2Q and 3Q19F at the Turkmenistan sector of the Caspian Sea. The award has been delayed from November 2018 to January 2019F for reasons unknown to Bumi Armada.

If this client decides not to proceed with the award, both vessels will probably be unemployed for the whole of 2019F, since Lukoil will only need the vessels for work at the Filanovsky oil field in the Caspian Sea for 2-3 years from 2020F. 

CIMB Research said in any case, with the only other vessel in the Caspian Sea locked up for long periods working in Azerbaijan, Bumi Armada ’s subsea vessels are the only ones available, which virtually guarantees work in one form or other. 

Separately, Bumi Armada  has completed retrenching 15% of its staff, and the expenses should be reflected in 4Q18F numbers, with cost savings from 1Q19F onwards.

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