This article first appeared in The Edge Financial Daily on May 29, 2019
KUALA LUMPUR: Bumi Armada Bhd, which is currently looking for buyers for its 39 offshore support vessels (OSVs) and non-utilised floating production storage and offloading (FPSO) vessels, has no intention to ask for more money from its existing shareholders.
The group’s top management told shareholders at its annual general meeting (AGM) yesterday that it has no plan to make any cash call, at least for the time being.
Some quarters view that the OSV and FPSO operator needs to recapitalise to put it on a stronger financial footing given that the group has not been able to secure chartered contract fast enough. A rights issue to raise fresh capital is an option, which its oil and gas (O&G) peers have opted.
Bumi Armada’s gearing ratio stands at 2.7 times with total borrowings near RM10 billion as at end-March, over half of which or RM5.29 billion remains as short-term debt to date.
Speaking to reporters at the sidelines of the group’s 23rd AGM here, executive director and chief executive officer Gary Christenson said the group does not have a target for its gearing ratio.
“Suffice to say our gearing is currently too high, uncomfortably, high, and that is why all of the initiatives to cut costs, operate our assets better, and monetise the assets as well,” he said.
The group intends to sell off its non-utilised FPSO vessels — Armada Claire and Armada Perdana, according to him.
The disposal will help to reduce maintenance costs and raise funds to pare down debts.
Part of the proceeds from the sale will also be used to partly fund its capital requirement for the FPSO project in India which it was awarded earlier this month, said.
Christenson brushed off concerns about the selling price of the assets amid persistent OSV oversupply and volatile O&G market.
“We are not going to give them away, [and will sell them] only on commercially acceptable terms,” Christenson said, adding that the group is concurrently looking for opportunities for redeployment of its assets as well.
While details are scarce, analysts have in mid-2018 estimated the book value of FPSO Armada Claire to be at around US$100 million, whereas FPSO Armada Perdana is estimated to have a book value of up to RM300 million.
The management did not provide a book value for FPSO Armada Claire considering the ongoing US$283 million claim by Bumi Armada against Woodside Energy Julimar Pty Ltd for the vessel’s early contract termination in 2016.
“There will be an initial judgement [on the claim] in the fourth quarter of 2019. Then there will be a period for appeals, as we understand the legal process,” said Christenson, hinting of a longer timeline before Bumi Armada can receive the compensation even if it wins in court.
To focus on FPSO
As Bumi Armada seeks to improve cash flow and reduce debt, it is also working hard to slash costs and operate its assets better. If the two FPSOs are sold, Bumi Armada will still have six operating FPSOs.
The group is positioning itself as a full-fledged FPSO company instead of an OSV company, seeing how the stocks of companies in the latter category have largely suffered massive sell-off over the past year, Christenson said.
“When you look at the FPSO sector, we are at the bottom and everybody else is above us. That’s partly because we have too many OSVs, and it did not help that we have the three FPSO troubles — Kraken, Claire and Perdana,” he conceded.
The immediate concern is its FPSO Armada Kraken, which the management said previously that it has undertook the necessary impairment amid troubles with on-board generators which caused production issues in the second half (2H) of 2018 .
“From a prudent analysis, unless something else comes up that we don’t expect, we should be doing a lot better in 2HFY19 (2H in financial year 2019) than we did in 2HFY18,” said Christenson.
After that, the next course of action will revolve around getting the necessary financing for its 30:70 joint venture with India’s Shapoorji Pallonji Oil & Gas, where it has secured a US$2.1 billion nine-year charter from Oil and Natural Gas Corp Ltd in east Kakinada, India with seven annual renewals for an aggregate US$655 million.
Analysts estimate Bumi Armada will need to churn out over RM300 million for the project, which will be used to also convert a donor ship from Shapoorji to undertake the project.
Noting shareholders complain about possible speculative trades on the counter amid high intraday short-selling volume in recent months, Christenson said: “We will write to the Securities Commission and Bursa Malaysia to highlight that shareholders had made this complaint for them to investigate.”
Shares in Bumi Armada closed unchanged at 19.5 sen yesterday, with a market capitalisation of RM1.15 billion. Year-to-date, the counter has gained 25.8%, But still far from its trading levels of over 80 sen in the last few years.