Negative on Yinson’s contract termination in Ghana
KUALA LUMPUR: Analysts are negative on the termination of Yinson Holdings Bhd’s (Yinson) letter of intent (LOI) by Aker Energy to provide a floating production storage and offloading (FPSO) vessel for the latter’s Pecan development project offshore Ghana.
The termination is due to the decision made by Aker Energy to postpone development of the project until further notice amidst the Covid-19 pandemic.
“Naturally, we are negative on the news. We have previously priced-in the Pecan project FPSO into our sum ofp artsvaluation, and hence, this termination would directly result in a devaluation of the company,” said the team at Kenanga Investment Bank Bhd (Kenanga Research) yesterday.
“While it is entirely possible for the project to be revived, we believe the project would first need to undergo a reconceptualisation with financial breakeven for the project reported to be US$40 to
US$50 per barrel.”
Other projects at risk of termination include the Parque das Baleias FPSO project by Petrobras, Kenanga Research said. It stands out with the highest risk of not materialising as it is the only one that has yet to be finalised into an official contract.
“Meanwhile, all the other projects are already included into the company’s order-book. Already secured contracts in the order-book should have a relatively low risk of termination, seeing that there are iron-clad termination clauses in place.
“As for Parque das Baleias, we see that a renegotiation of commercial terms, or a delay in project commencement date as highly possible, despite Yinson being the only bidder for the project.
“Petrobras had recently announced a 29 per cent slash in its annual capital expenditure budget, portraying the oil major’s gradually cautious stance amidst this oil price downturn.”
Kenanga Research thus maintained an outperform call for Yinson as it removed the Pecan FPSO entirely from its valuation.
That said, given most of its borrowings are project financed, ring-fenced around the project assets and guaranteed by clients, Yinson has a relatively low risk of default despite the oil price downturn.
“Ventures into Indian solar plants. Meanwhile, Yinson is seeking to acquire 37.5 per cent equity interest in an Indian incorporated company, Rising Sun Energy Pte Ltd, which has two operational solar plants in the Bhadla Solar Park, Rajasthan, India.
“We are overall neutral on this news (which is too immaterial to even trigger a Bursa announcement) which hardly has any significant financial impact. However, it marks as one of Yinson’s steps towards diversifying into renewable energy for the long term.”