Cash call option for Bumi Armada

The contracts were associated with the floating production, storage and offloading (FPSO) vessel Armada Perdana, and the suspension was first announced last June after delays to the bare-boat charter payments as well as irregular payments on the operations and maintenance contract.

PETALING JAYA: Despite management’s guidance that there will not be an equity raising exercise in the near term, Bumi Armada Bhd may need to recapitalise its balance sheet, said KAF-Seagroatt & Campbell Securities.

The research house opined that one of the remaining few options available for Bumi Armada to improve its balance sheet is asset monetisation, although it remains to be seen if the group will be able to effectively conclude its asset monetisation.

“We are unsure as to whether shareholders would be supportive of a cash call in view of the group’s current underperformance led by FPSO Kraken and weak Offshore Marine Services segment outlook, as well as being massively dilutive at current share price levels.

“Furthermore, even if a cash call exercise is successful, the current share price discount to our sum-of-parts value will largely be reversed on account of the sheer number of shares that will potentially need to be issued, given the current market capitalisation of RM1bil as compared to total debt of RM10bil,” said KAF-Seagroatt in a recent report.

The group made another round of impairments totalling about RM1.3bil for the fourth quarter of financial year 2018 (FY18), bringing total impairments for FY18 to RM2.5bil.

As a result, net gearing increased to a high of 2.7 times.

Bumi Armada is also claiming compensation of US$283mil (RM1.15bil) in a lawsuit against Woodside Petroleum over the premature contract termination of its FPSO vessel Armada Claire.

However, according to CGS-CIMB, a decision by the Australian courts on the lawsuit is expected only in September 2019, later than the initial April guidance.

Hence, Bumi Armada could not rely on the court award to resolve its immediate liquidity issues.

Apart from that, negotiations to refinance the group’s corporate loans are still ongoing.

CGS-CIMB added that Bumi Armada has not been able to resolve technical issues surrounding the FPSO Kraken despite continuous efforts since February 2017.

As a result, Bumi Armada may have to incur out-of-pocket expenses to troubleshoot over many years.

“The failure to achieve uptime requirements and the onerous penalties that follow the failure are alarming, since they impact cashflows and may make it challenging for Bumi Armada to repay its project finance debt.

“Project lenders have not yet waived their rights to demand for immediate repayment of the loans, which we see as a troubling sign.

“We have turned pessimistic on Bumi Armada’s ability to walk the tightrope without a helping hand from shareholders,” said CGS-CIMB.

KAF-Seagroatt did not foresee further room for growth, as the group may face difficulty in securing project financing for any further job wins given its current high gearing levels.

Shares of Bumi Armada closed unchanged at 17.5 sen.

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