This article first appeared in The Edge Financial Daily on July 12, 2019
KUALA LUMPUR: Yinson Holdings Bhd is confident it has adequate resources to take on up to three new floating production storage offloading (FPSO) contracts on top of its existing fleet of six FPSOs.
The group, which has seen stellar growth in share price this year, is much more beefed up compared to five years ago, said its chief executive officer Lim Chern Yuan, referring to the period when Yinson made its first mark in the capital-intensive business.
“We have our back end sorted out; our back end is much bigger. Our engineering team is much more solid ... so I think resource-wise we are comfortable.
“If there are two, three projects [to secure], it is something that we can execute well. We do have the appetite,” Lim told reporters after Yinson’s 26th annual general meeting yesterday.
Pointing out that there are only three active FPSO players currently, Lim views that demand — 30 FPSO projects could pass final investment decisions in 2019 to 2021, according to Rystard Energy — far outweighs supply. “We are happy to expand at this time,” he said.
At the moment, analysts view Yinson as the likely winner of at least two of five ongoing FPSO bids — three in Brazil, and one each in Malaysia and Ghana. FPSO builds typically require around US$1 billion (RM4.12 billion) worth of capital expenditure.
In March, Yinson’s partner Sumitomo Corp inked a letter of agreement for an effective interest of at least 20% in the Marlim field FPSO project offshore Brazil that Yinson is bidding for. Lim is not discounting similar collaborations in other projects as well.
That aside, Yinson already has an order book of US$4.9 billion. The group operates six FPSO vessels currently, of which three are serving their long-term charters, and two — FPSO Helang and FPSO Abigail-Joseph — will come on stream at year end and early 2020 respectively.
Meanwhile, Yinson is still negotiating a long-term charter for its sixth vessel, FPSO Lam Son, in Vietnam. Its short-term charter is currently renewed monthly, with the latest deal ending on July 31, according to reports.
“At this point, Lam Son is producing enough oil to sustain its operations and the charter rate,” Lim said. Should production drop, a redeployment is a “likely scenario”.
The market consensus estimates Yinson to deliver a net profit of RM257.4 million for the current financial year ending Jan 31, 2020 (FY20) — a 9% jump from RM234.9 million for FY19 — on the back of a revenue of RM1.06 billion.
Its FY19 dividend payout stood at four sen per share or RM21.6 million, from 10 sen apiece for FY18. Some have paid attention to the group’s cash flow, with perpetual securities distribution more than doubling to RM78.06 million in FY19 from RM30.65 million in FY18.
Yinson typically funds its FPSO projects via a combination of internal cash, project financing, and perpetual securities that can be redeemed in exchange for equity in the completed asset.
As at April 30, 2019, Yinson had issued three perpetual securities to the tune of RM1.85 billion. One of them, worth US$100 million, will have its first call date this September.
On that, the group has assured that returns from its FPSO projects are generally higher — between 16% and 25%, according to analysts’ estimates — as opposed to the perpetual coupon rate of around 7%.
Lim also reiterated that the group is free from risks arising from oil and gas reserves, the production level as well as oil price fluctuation under Yinson’s contracting practice.
Company still waiting for Ezion lenders’ nod
On another matter, Lim said Yinson is still waiting for lenders of Singapore-based Ezion Holdings Ltd to approve its offer to buy into the debt-laden liftboat operator.
“Currently, we have not gotten the approval from all the banks [involved]. The due diligence process is still ongoing,” said Lim, who declined to provide a tentative deadline for the proposal to materialise.
Yinson announced on March 31 that its unit Yinson Eden Pte Ltd (YEPL) had proposed to take on up to US$916 million worth of Ezion’s debt in exchange for 22.57 billion new Ezion shares at S$0.055 (17 sen) per share or 86% of the latter’s enlarged share capital.
The deal would also come with 3.36 billion share options to YEPL convertible on a one-on-one basis to Ezion shares at S$0.0605 apiece.
Concurrently, it proposed to pay US$380 million to the respective Ezion lenders in the form of US$200 million cash — of which US$150 million would come from borrowings — plus a 16% stake in Ezion worth US$180 million.
With the consideration to be ultimately finalised with lenders, YEPL expects to obtain a controlling stake of at least 51% in Ezion.
Yinson and Ezion lenders have missed the initial April 14 deadline to finalise the agreement, which gives Yinson the right to drop the deal altogether.
Year to date, Yinson’s share price has risen by 70.24%. The counter closed at its all-time high of RM7.15 yesterday, giving the company a market capitalisation of RM7.82 billion.