KUALA LUMPUR: Bumi Armada Bhd
's high net gearing remains a key concern despite its announcement that it has secured US$660mil in debt refinancing.
"This still does not mitigate the company’s high level of borrowings, amounting to RM10.4b as at end-FY18 - implying an alarming net-gearing level of 2.7x," said Kenanga research in a note.
It added that it suspects the refinanced tenure may be shorter than what the management was hoping for, while the interest cost could be significantly higher following the refinancing as compared to average interest rates of 4.83% for the revolving credits and 4.94% for the terms loans in FY18.
However, Kenanga added that the debt refinancing, while widely expected, is a positive that allows the company to circumvent its borrowings default risk in the immediate term.
Kenanga maintained its underperform rating on Bumi Armada and raised its target price to 25 sen from the previously distressed valuation of nine sen.
Moving forward, the research house said the group wll have to continue efforts in managing its cash flow and operation to meet upcoming debt repayments.
"Operations in one of its biggest asset – the Armada Kraken FPSO, had suffered numerous hiccups over the past year, leading to massive impairments of >RM1.6b on the asset in
FY18.
"As such, we believe smoothening out all of its FPSO operations is paramount for the company to regain its financial footing," it said.
Options for Bumi Armada to raise cash could arise from a favourable outcome from its legal dispute with Woodside Petroleum, possible assset sale or partial stake sale in one of its smoothly operating FPSOs, or cash call from the equity market as a last resort.
Kenanga is not overly positive on reports that the group is close to securing a FPSO contract from ONGC given that it is the only bidder, which could indicate less favourable contract terms in addition to issues relating to its capex funding.
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