“We slash our target price to 30 sen, based on a 70% chance of a rights issue at 13 sen, and 30% chance of a business-as-usual sum-of-parts valuation of 70 sen,” it said on Thursday.
CIMB Research maintained its Add call since upside is more than 10%, but highlight that the share price may be volatile given the risk of a potential rights issue.
To recap, Bumi Armada has US$380mil in term loans that are due by May 2019F at the latest, but it has not yet concluded lengthy refinancing negotiations with its group of lenders.
“We suspect that some lenders may want some degree of repayment and may not be willing to extend the loan in its entirety. Bumi Armada has another US$320m in revolving credits that will ultimately need to be repaid. Bumi Armada is bidding for some new FPSO contracts, and will struggle to fund the equity portion of its capex investment without new cash infusion,” it said.
As at Sep 30, 2018, Bumi Armada had about US$370m in consolidated cash balances. Bumi Armada said in the past that it has the ability to sell partial stakes in its FPSO assets to raise cash. A 30% stake sale of the Armada Olombendo may raise US$179m.
Separately, Bumi Armada is claiming US$284m in a lawsuit against Woodside Petroleum.
“Adding all these sources of cash up gives us a total of US$833m, which is more than the short-term debt balance of US$700m. However, some cash will be needed for working capital.
“Furthermore, Bumi Armada has been very quiet regarding a potential FPSO stake sale, and the Euro Medium Term Notes (EMTN) programme of US$1.5bn has not been tapped on since it was established in 2013, as the terms are supposedly unattractive and will constrain Bumi Armada’s corporate flexibility.
“Meanwhile, Bumi Armada is gunning for ONGC’s KG/DWN/98-2 floater contract offshore India that may require Bumi Armada to invest c.US$180m in equity. A one-for-one rights issue of 5,866m shares at 13 sen will raise that amount.
“If Bumi Armada wins the lawsuit, sells a partial stake in the Olombendo, and convinces bankers to reschedule half of its short-term debt repayments, Bumi Armada should be able to invest in the 98-2 floater without an equity issue, and a relief share price rally is likely.
“On the other hand, if it does not win the lawsuit, and does not execute a partial FPSO stake sale in a timely manner, fails to convince bankers to extend all of its short-term debts, and prepares for an investment in the 98-2 floater project, a rights issue becomes much more likely, and the share price may drop quickly to the rights issue price, as was the case with the Velesto Energy rights issue in 2017 and the Sapura Energy rights issue in 2018.
“Investor confidence in Bumi Armada is very low, and Bumi Armada will need a strong anchor for the rights issue, if any, to succeed. Based on the limited information available to us at this point, we would wager a 70% probability of a rights issue,” it said.