‘Perisai’s potential MTN deferred repayment a temporary move’

KUCHING: The vote to defer payment of Perisai Petroleum Teknologi Bhd’s ( Perisai) S$ 125 million medium term note ( MTN) will only be a temporary measure, in the opinion of the research arm of TA Securities Holdings Bhd’s ( TA Research).

According to TA Research, Perisai will be conducting a meeting with the noteholders of the group’s S$ 125 million MTN to defer repayment of principal and interest to February 2017 from October 2016 previously.

The research arm recalled that Perisai’s second quarter of financial year 2016 ( 2QFY16) results came in below expectations due to an unexpected discount in daily charter rate ( DCR) for the group’s floating production storage offloading ( FPSO) Kamelia, which will now be pegged to crude oil prices.

TA Research noted that this was a negative surprise as Kamelia contributed the lion’s share of profit before tax ( PBT) in FY15 ( more than 100 per cent) and the reduced earnings in 2Q dragged Perisai into the red.

The research arm further noted that Perisai’s earnings before interest, tax, depreciation and amortisation ( EBITDA) did not manage to meet the three- fold interest coverage ratio requirement stipulated by the MTN.

“We opine that even if the noteholders vote ‘ yes’ to deferring repayment, it will only be a temporary measure.

“Despite having a put option on its E3 Enterprise worth US$ 50 million ( RM205 million), Perisai will still find it challenging to repay the remaining amount of circa S$57 million ( RM173 million).

“Perisai only has cash balance of RM21.9 million as of 2QFY16 and expected operating cash flow of RM45.1 million for full year FY16,” TA Research said.

For FY16E, the research arm forecasted Perisai to merely deliver EBITDA of RM97.1 million.

On another note, TA Research deemed Perisai’s registered net tangible assets ( NTA) per share of 52 sen in 2QFY16 to be rather inflated as a significant portion ( FY15: 99 per cent) of the group’s assets are oil and gas ( O& G) assets.

Given the ample supply of O& G assets coupled with low demand in the current operating environment, the research arm believed Perisai will be hard pressed to dispose these assets at current book values.

“The group will likely offer substantial discounts to sweeten any sale of its assets,” TA Reserach said.

“In addition, there is also a possibility of further asset impairments given that Perisai’s jackup rig contract expires in August 2016.”

The research arm noted that thereafter, there is a possibility that the original client, Petronas Carigali, may request Perisai to discount DCRs to current market rates of US$ 60,000 to 80,000 from US$ 100,000 previously.

Given the downcycle in the O& G industry, TA Research found that banks are reluctant to offer loans to O& G players without substantial collateral.

“Recall that Swiber, a Singaporean-listed O&G service provider recently defaulted and is currently undergoing judicial review,” it said.

“Hence, Perisai’s ability to repay noteholders via debt refinancing is unlikely.”

Meanwhile, TA Research highlighted that Perisai’s major shareholder, Ezra Holdings Limited ( Ezra) is also facing financial difficulties, unlike UMW Oil & Gas Corporation Bhd, which has strong financial backing from its parent company.

It noted that Ezra, an O& G service provider listed on the Singapore Exchange is Perisai’s substantial shareholder with a 22.9 per cent stake in Perisai.

“Ezra registered 3QFY16 losses before tax of US$ 239 million ( RM956 million),” the research arm said.

“Additionally, the group reported negative operating cashflows, and only has US$ 43 million ( RM172 million) in cash.”

Therefore, TA Research opined that Ezra would find it difficult to honour Perisai’s E3 put option.

The research arm further noted that on top of that, Perisai’s fleet of nine offshore support vessels ( OSVs) is chartered out to Ezra, which presents risks if the latter faces a liquidity crunch.

“Furthermore, Ezra may be unable to subscribe to any cash call exercises by Perisai,” it added.

On the impact, TA Research took into account expected provisions for the group’s trade receivables in FY16 and expected impairments across the board.

In tandem with the reduced book value after expected impairments and provisions, TA Research’s target price was reduced to RM0.12 per share, from RM0.215 per share previously, based on unchanged 0.3- fold price- to- book.

The research arm thus discontinued coverage on Perisai given the uncertainty in repaying its debt, idle assets continue to drag earnings and sustained negative outlook on the O& G industry.