Yinson adopts capital recycling


“Therefore, it will have to explore alternative funding sources, primarily by recycling its capital out of 74%-owned FPSO JAK and out of 75%-owned FPSO Anna Nery,” the brokerage noted, following a recent meeting with Yinson group CEO Lim Chern Yuan(pic), group chief strategy officer Daniel Bong, and director of group CEO office Chai Jia Jun.

PETALING JAYA: Capital recycling will be part of Yinson Holdings Bhd’s financing strategy to fund its ambitious growth plans.

This means the company is prepared to reduce its 74% stake in the floating, production, storage and offloading (FPSO) unit, John Agyekum Kufuor (JAK), offshore Ghana, and 75% stake in FPSO Anna Nery, offshore Brazil.

In addition, Yinson is also looking at potentially paring down its stakes in its greenfield renewable energy (RE) projects by selling them to investment funds at a profit, and then, recycling the capital into other projects.

This strategy is expected to help Yinson limit its equity issue to RM1bil.

The oil and gas service provider, which specialises in the provision of FPSO services, is actively seeking to expand its footprint in the RE and green technologies space.

The company has a handful of FPSO bids and prospects, while at the same time, it is pursuing many RE projects.

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Yinson has previously indicated its intention to undertake a RM1bil rights issue of new ordinary shares should it succeed in winning the FPSO contract from Petrobras’s Parque das Baleias (PDB).

The company does not intend to undertake further rights issues even if it secures additional contracts after FPSO PBD because it does not believe in frequently going back to shareholders for more funds each and every time it wins new projects, according to CGS-CIMB Research, citing Yinson’s management team.

“Therefore, it will have to explore alternative funding sources, primarily by recycling its capital out of 74%-owned FPSO JAK and out of 75%-owned FPSO Anna Nery,” the brokerage noted, following a recent meeting with Yinson group CEO Lim Chern Yuan(pic), group chief strategy officer Daniel Bong, and director of group CEO office Chai Jia Jun.

“For the FPSO JAK and FPSO Anna Nery, Yinson is prepared to trim its stakes further, possibly to below 50%, to secure the cash needed to fund the equity portion of the capital expenditure (capex) for new FPSO projects,” it said.

“Yinson is in touch with various interested parties and is confident it can sell down its stakes quickly once it has decided to proceed,” it added.

CGS-CIMB Research reiterated “add” on Yinson, with a target price of RM6.18.

The counter closed two sen lower at RM5.03 on Monday. Year-to-date, the counter had lost 12.5%.

The announcement for Yinson’s FPSO PDB bid is expected by October this, with the group likely to again emerge as the sole bidder from Petrobras’ re-tendering exercise. With capex at around US$1bil (RM4.2bil) and assuming 30% equity funding, Yinson will need to set aside US$300mil (RM1.3bil) for the equity portion of the capex.

Yinson had also submitted bids for Petronas’s FPSO Limbayong in Malaysia, with the award likely to be in the third quarter of this year; and Aker Energy’s FPSO Pecan in Ghana, another potential award for next year.

In addition, the company’s ongoing preliminary Front-End Engineering Design work for two TotalEnergies projects could result in contract awards in 2022 as well.

Yinson noted that plenty of FPSO projects had been up for bidding presently.

The group had expressed interest to participate in the FPSO projects for Jadestone Energy’s Nam Du Minh development and PetroVietnam’s Block B gas development, offshore Vietnam; TotalEnergies’s Chissonga development, offshore Angola; and Enauta’s Atlanta phase two development, offshore Brazil.

Yinson said it has not had any difficulties securing project debt funding for its FPSO projects despite the growing attention of financial institutions and banks on ESG (environmental, social and governance) considerations. “Banks are still very much focused on the cashflows from the project in question, which ultimately boils down to the charter rates to be paid by the FPSO charterer and to the creditworthiness of the FPSO charterer and its parent company,” CGS-CIMB Research said.

Yinson noted that enhancing the ESG credentials of its future FPSOs would likely help it secure a higher loan-to-value ratio for project financing, the brokerage added.

Meanwhile, it is noted that Yinson planned to increase its RE power generation capacity to between 3GW and 5GW over 2022-2025 and to establish its presence in at least three markets.

“Yinson selects the countries that it wants to invest or build its RE assets in by first evaluating the degree of policy support from the governments. Its RE pipeline encompasses potential projects to North America, South America, Europe, Asia and Australasia,” CGS-CIMB Research said.

For now, Yinson is focusing on India, Italy, South America (Chile, Columbia and Peru), and New Zealand.

On capital recycling in the RE space, CGS-CIMB explained, rather than holding an asset to maturity like a bond, farming down stakes in projects may be a faster way of recouping capital, which can then be recycled into other RE projects to diversify Yinson’s exposures across more projects and geographical regions.

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