This article first appeared in The Edge Financial Daily on December 4, 2018

KUALA LUMPUR: Bumi Armada Bhd, which has missed its proposed October deadline to restructure some US$500 million (RM2.09 billion) worth of unsecured short-term loans, told its employees that “the group’s efforts to pursue new work have been limited by its cash flow problem”.

Its chief executive officer (CEO) Leon Andre Harland, who took over the helm in May 2016, issued an internal memo last week informing his staff that despite the group’s concerted efforts to fundamentally improve its financial situation, it has not made substantial progress with its lenders or financial parties.

Consequently, this has caused a drastic reduction in Bumi Armada’s cash flow and limit to its efforts to pursue new work. The cash-strapped group revealed this to the stock exchange yesterday in response to the regulator’s query on unusual market activity after its share price slump last week.

Analysts contacted voiced their concerns over Bumi Armada’s financials and its future prospects. However, some see that the shares might have been oversold; hence it climbed 3.5 sen or nearly 22% yesterday to close at 19.5 sen despite the negative news.

“Basically, Bumi Armada is in a debt crisis. The company could be on the verge of bankruptcy if they are not able to negotiate a deal with lenders. If they can refinance the debts, it will be good for them,” said an analyst on condition of anonymity.

The debt problem, however, is not new to analysts who track the stock. There was a recent sharp fall on the share price to an all-time low of 16 sen last Friday. Year to date, the stock has shed 74.5%.

The Edge Financial Daily earlier reported that the group might need a recapitalisation exercise given its highly leveraged balance sheet and far from impressive earnings.

A cash call could be an option for Bumi Armada as two of its oil and gas peers — Velesto Energy Bhd (former UMW Oil & Gas Bhd) and Sapura Energy Bhd have opted for that.

However, given the current low share price level it might not be conducive for a rights issue. Furthermore, analysts said it is not sure if the controlling shareholder Ananda Krishnan, through Objektif Bersatu Sdn Bhd holding a 34.89% stake, is willing to pump in fresh capital.

Bumi Armada has US$500 million worth of unsecured short-term loans due in three tranches by May 2019. The group is in the midst of restructuring the remaining term of US$380 million, after the first tranche of US$120 million term loan extension for the remaining two tranches that is expected to be concluded in first quarter of 2019.

As at the third quarter ended Sept 30 (3QFY18), the group’s order book stood at RM21 billion with additional optional extensions of up to RM10.3 billion. Still, analysts said the large order book might not be able generate sufficient cash flow to service the debts. “The priority is to refinance the debts,” said an analyst.