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This article first appeared in The Edge Financial Daily on February 18, 2019

KUALA LUMPUR: Bumi Armada Bhd’s efforts to restructure some of its unsecured short-term loans of around US$380 million (RM1.55 billion) seem to have met with cold shoulders as banks remain reluctant to increase exposure to the oil and gas sector.

The existing banks are not keen on granting the refinancing schemes for Asia’s leading offshore service vessel and floating production storage and offloading (FPSO) owner, according to sources.

The loans were initially due in May 2019, according to previous arrangements. The group has already missed the deadline on Dec 31, 2018. Failure to obtain the bank’s support could potentially drive Bumi Armada to further extend its renegotiation deadline from the first quarter 2019 (1Q19) presently.

When asked about the matter, in an email reply, Bumi Armada told The Edge Financial Daily, “We are unable to provide any information given that the group is currently working on the refinancing of our debt, and finalising FY18 (the financial year ended Dec 31, 2018) financial results.”

“We will make the appropriate disclosures at the appropriate time,” the group said.

Nonetheless, there could be a lifesaver for Bumi Armada to ease its financial stress — the potential of winning hefty compensation over the Armada Claire case.

The compensation over the premature contract termination of its FPSO vessel Armada Claire is in the tune of US$283 million. A hearing will be held at Western Australia’s Supreme Court tomorrow.

Meanwhile, it still has its US$1.5 billion euro medium-term note programme, which analysts said is more appropriate if utilised to fund new projects. As at Nov 23, 2018, the programme had remained untouched.

That said, most analysts viewed that Bumi Armada could get the nod from lenders to shift the deadline again, having done it once in 4Q18.

“The downside is that interest rates would be higher, although we can take note of the smaller principal remaining [from US$500 million in October 2018],” an analyst shared with The Edge Financial Daily.

“But I am more concerned about the cash flow. There is no news on the contract bids for its subsea vessels [Armada] Installer and Constructor that are idle now,” he added.

Indeed, there has been speculation for long on how Bumi Armada will recapitalise its balance sheet.

 

Rough waters in the Caspian Sea

To recap, the chartered contracts for the two subsea vessels in the Caspian Sea were in June and October 2018 respectively. The absence of contribution from there has resulted in lower earnings generated in the offshore marine services (OMS) division in the third quarter ended Sept 30, 2018 (3QFY18). Further decline is likely in 4QFY18, according to analysts.

In the 3QFY18, Bumi Armada booked a net loss of RM502.83 million on the back of RM588.05 million in revenue. Quarter-on-quarter, revenue fell 10% against RM654.04 million in 2QFY18, as contribution from both floating production and operation (FPO) and OMS segments fell.

The FPO segment revenue may rise, which in turn will stabilise in 4QFY18, as it has managed to win a contract extension for Armada TGT1 in last August.

However, that alone cannot sustain its debt burden if no new subsea vessel jobs come in, commented UOB Kay Hian Research in a note dated Jan 7, 2019.

Of Bumi Armada’s RM11 billion worth of borrowings, UOB Kay Hian Research estimated that around RM5 billion was “mostly incurred to support the group’s OMS expansion in the past”.

Taking the debt and the troubled OMS segment into account, UOB Kay Hian has lowered its target price (TP) per Bumi Armada share to 10 sen — the lowest of the lot.

On the contrary, CGSCIMB Research, which pegs the TP of 70 sen among the highest, is optimistic about Bumi Armada securing fresh contracts for the subsea vessels.

“In any case, with the only other vessel in the Caspian Sea locked up for long periods working in Azerbaijan, Bumi Armada’s subsea vessels are the only ones available, which virtually guarantees work in one form or other,” explained the research house in a note dated Jan 17.

That said, some are also concerned about impairment risks.

Kenanga Research in a note dated Nov 26, 2018 opined that market prices for many of Bumi Armada’s assets were still “greatly below its book-carrying amount”.

This is despite Bumi Armada having already impaired slightly over RM1 billion combined for its FPSO and OMS segments in the first nine months of 2018.

“We still find Bumi Armada’s asset turnover ratio to vastly lag behind pre-2014 levels before the oil price plunge, hence implying bloated asset-carrying values, and thus further impairment risks moving forward,” said the research house, which has set a TP of 15 sen for the company.

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