Short Position - More provisions from Bumi Armada?


  • Corporate News
  • Saturday, 30 May 2020

If anybody had thought that the company, which is owned by T. Ananda Krishnan (filepic), was done with provisioning for its assets, they were proven wrong. In the latest quarter results, the company sunk into the red due to the setting aside RM314mil for impairments for its offshore marine services (OMS) segment.

More provisions from Bumi Armada?

BUMI Armada Bhd, the service provider to oil and gas companies, has provided for no less than RM5.8bil as impairments for its assets since the financial year 2016. The bulk of the provisioning was taken up at the group level.

If anybody had thought that the company, which is owned by T. Ananda Krishnan, was done with provisioning for its assets, they were proven wrong. In the latest quarter results, the company sunk into the red due to the setting aside RM314mil for impairments for its offshore marine services (OMS) segment.

Bumi Armada has 35 vessels in its OMS segment where the utilisation rate is 56%. Out of the 35 vessels, three are subsea construction (SC) vessels while the rest are offshore service vessels (OSVs).

According to analysts, the provisions are mainly for the SC vessels that are lying idle without any charter in hand since early last year. The SC vessels are in the Caspian Sea where drilling activities have reduced significantly.

Fortunately for Bumi Armada, its floating production, storage and offloading (FPSO) assets are performing well. Bumi Armada wholly owns four FPSOs and co-owns three others.

It has one FPSO asset that is lying idle and up for sale. Fortunately, the company has completely provided for the FPSO asset that was due to be mobilised to an oil field offshore Australia. But there were disagreements and the FPSO Claire has returned to the custody of Bumi Armada. Hence, if any sale happens, it is a pure writeback for Bumi Armada.

The company is looking to dispose of the remaining OSVs because competition is keen and margins are narrow in that particular segment of the oil and gas industry. Even Petronas has urged the local players to consolidate but its calls have largely fallen on deaf ears.

The concern is Bumi Armada would have to provide more impairments as more disposals of OSVs take place.

Towards this end, some analysts have downgraded the stock to as low as 10 sen as they do not see any catalyst for earnings growth and are uncertain if the company has to make more provisions.

Rise in property scams during MCO

THEY say “an idle mind is a devil’s playground”. With the movement control order (MCO) forcing everyone into lockdown, scammers have been using the “downtime” to ramp up their unscrupulous, money-making schemes.

The property sector, especially the hotel segment, has been hit hard by the MCO and scammers have been quick to capitalise on the vulnerability of this sector.

Recently, a list containing the names of hotels within the Klang Valley and Penang purportedly up for sale, has been rubbished by estate agents as nothing more than a scam by unscrupulous deal-makers looking to cash in on the uncertainties during the MCO.

The list, which has gone viral on WhatsApp, contains more than 40 properties that include a number of well-known four- and five-star hotels, as well as serviced suites up for sale for between RM4mil and RM1.2bil.

So how does the “con” work? Here, a scammer will masquerade as a licensed estate agent to enhance his or her credibility. However, the selling price (in this case, the hotels and other properties on the list) will be marked significantly lower to make the deal more enticing.

Once a potential buyer “takes the bait, ” the scammer may lie and say he or she has 10 other buyers that are interested in the property.

The scammer may then tell the interested buyer to deposit a booking fee, in return for fake leverage over the other buyers in the queue. Believing that times are now bad and the market will recover later, the interested buyer might think this would be a golden opportunity to cash in and score later.

Without thinking, the interested buyer pays the deposit and the scammer runs away with the cash.

Earlier this month, the Malaysian Institute of Estate Agents (MIEA) warned that the public need to be cautious in buying and selling properties during the MCO period to avoid falling prey to scams.

MIEA noted that amid the MCO, the majority of Malaysians looking to buy or sell property will be relying on online platforms.

Starts with a trickle

WHEN the East Coast Rail Link (ECRL) was first announced, it courted controversy over the concept of the project. After some period of political wrangling, the project was finally given the go-ahead with terms changed to benefit more Malaysian contractors.

It was a blue-chip project for the country. One at a great cost but also one that could bring great benefit is executed well.

The silence of contract flows for the project did make the construction sector uneasy but the movement control order did put those worries to rest. But now, news flow is starting to trickle for companies involved in the project.Both Ho Hup Construction Company Bhd and Gadang Holdings Bhd announced contract wins over the past week and that ignited investor interest in those companies. The contract amounts both won were RM102mil and RM81mil respectively but there is much, much more to go with the overall project estimated at RM44bil.

The question now is which companies will land the bigger contracts? Proceeding with the ECRL when the economy is going through a devastating period from containing the Covid-19 outbreak will be needed in the rebuilding phase of the economy. The economic multiplier from construction has huge linkages with the domestic economy.

One other benefit from this is currently with talk of western and Japanese companies leaving China, and Malaysia is ready to woo them in their relocation efforts, having a well-functioning ECRL will only help in making the infrastructure pitch to those companies.

The industrial parks that are suppose to dot along the tracks can be available to those companies and more importantly will be the job opportunities that can come from having a large project such as the ECRL proceeding.

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bumi Armada , Ananda Krishnan , property , scams , MCO , ECRL ,

   

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