KUALA LUMPUR (March 4): CIMB IB Research has downgraded Bumi Armada Bhd (BAB) to “Reduce” at 18 sen with a lower target price of 15 sen (from 30 sen ) and said BAB’s FY18 core net profit of RM194 million was 41% above house forecast (15% below consensus).

In a note March 3, the research house said information from Friday’s analyst briefing suggests that BAB is facing rising financial pressure, which may lead to an inevitable equity-raising exercise.

CIMB Research said it had turned pessimistic on BAB’s ability to walk the tightrope without a helping hand from shareholders.

It said in addition to the Kraken issues, a decision by the Australian courts on the lawsuit against Woodside is expected only in Sep 2019, later than the initial Apr guidance, so BAB cannot rely on the court award to help it resolve its immediate liquidity issues.

"Due to the breach in a covenant, the RM1.5 billion sukuk due in 2024 is now due immediately, unless sukuk holders grant an indulgence.

"Discussions to extend the May 2019 due date for US$380m in short-term debt are still ongoing; we think partial repayment may be required. Finally, BAB is keen to pursue the ONGC 98-2 FPSO project, in which it emerged as the only bidder with its Indian JV partner; the project may need BAB to contribute c.US$180m in equity capital.

"We cut our SOP valuation of BAB from 70 sen to 36 sen. Our new target price of 15 sen is based on an 80% probability of a rights issue at 10 sen, and a 20% probability of a no-rights SOP valuation of 36 sen.

“Downgrade from Add to Reduce. We halve our SOP-based target price to 15 sen as we now forecast Kraken as a deduction from BAB’s valuation,” it said.