Brokerage: Bumi Armada’s downside risk is growing


  • Business
  • Wednesday, 27 Mar 2019

PETALING JAYA: Despite nearing a US$500mil (RM2.03bil) loan deal, Bumi Armada’s downside risk is growing, with deteriorating fundamentals from both floating production storage and offshore (FPSO) and offshore marine services (OMS) segments, said UOB Kay Hian.

Bumi Armada closed 5.1% lower at 18.5 sen and was the highest traded counter with a volume of 349.06 million shares.

In a research report yesterday, UOB Kay Hian said the fundamental drag on Bumi Armada is its earnings before interest, tax, depreciation and amortisation (Ebitda) deterioration from the OMS segment.

“This is even if the FPSO earnings stabilise.

“At the least, the group must replenish the OMS contracts and return to profitability, as well as resolve the uncertainties of loan refinancing to support upside catalysts for the stock.Overall, we are still concerned over the group’s long-term ability to repay loans,” said UOB KayHian.

In a company update earlier in January, the research house had estimated that out of Bumi Armada’s RM10bil loans, about RM6bil to RM7bil are project loans for the FPSO segment, while the remainder of more than RM4bil are unsecured loans that were likely incurred to support the group’s expansion in the OMS segment.

The OMS segment comprises offshore support vessels and subsea construction vessels.

On Monday, Bloomberg reported that Bumi Armada was nearing an agreement for a US$500mil loan, which will give the energy firm more time to sell assets and restructure its business in a bid to return to profitability.

Banks are reported to be finalising a five-year credit facility and Bumi Armada is expected to sign the loan agreement with lenders as soon as the next few weeks. The funds will be used to refinance debts that are maturing in May and for working capital.

UOB Kay Hian opined that this potential negotiation on the refinancing will help address uncertainties in the market and worries of cross-default risks.

Bumi Armada has an immediate RM1.5bil of unsecured term loans that needs to be refinanced and the guidance for a refinancing outcome had been delayed several times to the second quarter of 2019.

This brought many uncertainties in the market, as to whether the company may have to resort to an unfavourable outcome of a rights issue or default on its loans.

Additionally, Bumi Armada is seeking a solution with the sukuk holders for the RM1.5bil of sukuk murabahah which had its covenant breached, while the RM1.8bil project loan for Kraken is also facing problems on poor Ebitda generation.

“Stock valuation remains expensive versus the risk, trading at more than 10 times enterprise value to Ebitda (EV/Ebitda), in view that the Ebitda generation of the relevant businesses is still declining.

“Our valuation could re-rate upwards once the OMS fundamentals sustainably improve, which may prompt us to remove the debt discount,” said UOB Kay Hian.


   

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