Bumi Armada hampered by impairments with unresolved debt refinancing

KUCHING: Analysts are concerned over Bumi Armada Bhd’s ( Bumi Armada) existing debt levels, with US$ 380 million or RM1.59 billion term loans due for repayment by the first quarter of 2019 (1Q19).

While the group has paid US$ 120 million of the US$ 500 million debt due in October 2018 for the Kraken floating production storage and offloading ( FPSO) vessel, negotiations to extend the maturity profile for the remaining US$ 380 million term loan have been extended until 1Q19.

AmInvestment Bank Bhd (AmInvestment Bank) saw that the firm did not utilise the group’s US$ 1.5 billion euro mediumterm note programme given by the same financial institutions under the current term loan, as its maturity deferment is still being negotiated.

“Alternatively, plans for asset securitisation via partial divestments of its wholly- owned FPSO Olombendo, which has recently achieved full acceptance, are still being reviewed.

“As management has now moderated its view to consider a cash call, we highlight the rising risks of an equity-raising exercise in the near term, especially if the group manages to secure another FPSO charter,” it said in a note.

This came as the group posted a surprise 3QFY18 impairment of RM563 million when announcing results for its third quarter of financial year 2018 (3QFY18). The impairment came from 70 per cent of the group’s 44 offshore support vessels together with the loss from the sale of Armada Ulysses, which was earlier intended for an FSPO project.

“Together with Armada Kraken’s 2QFY18 penalties arising from different technical specifications determined in the contract amendment to mitigate Bumi Armada’s exposure to the client EnQuest’s claims, the group’s total 9MFY18 impairments surged to RM1 billion.”

Kenanga Investment Bank Bhd ( Kenanga Research) was also concerned over Bumi Armada’s existing debt levels.

Moreover, it also saw further impairment risks going forward, both of which combined, may lead to severe hampering of its job winning ability.

“With growing concerns over its debt repayments, coupled with identified further impairment risks going forward, we find a derating of its valuations necessary,” it said in a separate report.

“Hence, our target price (for Bumi Armada) is lowered to RM0.350 per share, from RM0.550 previously.”

Looking at its orderbook, MIDF Amanah Investment Bank Bhd ( MIDF Research) saw that Bumi Armada’s latest orderbook as at September 30, 2018 stands at RM21 billion compared with RM20.2 billion as at June 30, 2018.

About 93 per cent of the orderbook consists of floating, production and offloading ( FPO) contracts ( RM19.5 billion) while the remaining seven per cent are OMS jobs ( RM1.5b). The optional extension orderbook stands at RM10.3b.

are maintaining our NEUTRAL recommendation on BAB with a revised TP of RM0.35 per share. Our valuation is based on PER19 of 15x pegged to EPS19 of 2.3sen.

We opine that this is fair given that the OMS segment will continue to face headwinds due to the oversupply in the OSV segment (especially the higher brake horsepower vessels), and despite the increased in utilisation rate during the quarter; it is not expected to translate into higher revenue due to persistently depressed charter rates.

Furthermore, two of its FPSOs i.e Armada Claire and Armada Perdana are currently not yielding due to issues facing the charterers

That said, we opine that the expected continued increase in contribution coming from Armada Olombendo and Armada Kraken FPSOs will assist in mitigating the shortfall going forward.