Alam may be able to resolve RM30 million sukuk backed by sinking fund

KUCHING: Alam Maritim Resources Bhd (Alam) is believed by analysts to possibly be able to restructure and resolve the RM30 million sukuk backed by the RM28 million sinking fund.

Alam announced in a filing on Bursa Malaysia last week that the company had received a letter issued by the Corporate Debt Restructuring Committee (CDRC) of Bank Negara, approving the company’s application for assistance to mediate between Alam and certain of its subsidiaries, joint venture companies and associated companies and its respective financiers/sukukholders.

“This is part of the company’s proactive effort in managing its asset financing structure to safeguard the affected companies, whose core businesses are still viable, from any potential financial distress which may elicit a cross-default in other financing facilities and sukuk,” the group said.

Kenanga Research noted that Alam has sukuk amounting RM30 million due in July this year and another RM45 million in January 2018.

“Meanwhile, Alam also has RM19.7 million of term loans, of which RM4.4 million is classified as current liabilities,” the research arm said.

It added that as of the fourth quarter of 2016 (4Q16), Alam has cash and bank balances of RM45.1 million, of which RM28.4 million is set aside as sinking fund for the repayment of sukuk.

Therefore, the research arm believed Alam may be able to restructure and resolve the RM30 million sukuk backed by RM28 million sinking fund but the next, which is the last sukuk payment of RM45 million is in need to be restructured/deferred given the current weak operating environment.

Kenanga Research highlighted that despite net gearing level remaining low at 0.2-fold as of 4Q16, Alam recorded negative cash flow from operations of RM32.3 million following a 29 per cent year on year (y-o-y) decline in revenue as well as a huge repayment of payables in financial year 2016 (FY16).

Going forward, the research arm expected the weak cash flows from operations to maintain given that Alam is aiming to register a revenue of between RM200 million to RM300 million, backed by an orderbook of RM390 million.

As for the offshore support vessel (OSV) segment, Kenanga Research noted that it is expected to stay challenging in 2017 despite stabilisation of crude oil prices given that the market is still flooded with idle newer vessels.

“As such, we do not foresee a strong recovery in charter rates in the near term,” it said.

The research arm kept its earnings forecast pending announcement of 1Q17 results this week.

All in, Kenanga Research maintained ‘market perform’ on Alam with an unchanged target price of RM0.31 per share, pegged to the research arm’s valuation of 0.4-fold Fwd. price to book value (PBV), which was still below the sector’s average due to oversupply issue.

“However, take note that earnings recovery could be slower than other sub- segments as increase in vessel utilisation could be at the expense of charter rates,” it advised.