Its 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.
Sources say the existing banks are not keen on granting the refinancing schemes for Asia’s leading offshore service vessel and FPSO owner. 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.
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 pre-mature 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 on 19 Feb 2019.
Meanwhile, it still has its US$1.5 billion euro medium-term note programme, which said is more appropriate if utilised to fund new projects. As at Nov 23, 2018, the programme had remained untouched.
That said, most observers 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 of the smaller principal remaining [from US$500 million in October 2018].
But observers are more concerned is the cash flow. There is no news on the contract bids for its sub-sea vessels [Armada] Installer and Constructor that are idle now (Till mid Feb 2019).
Indeed, there has been speculation for long on how Bumi Armada will recapitalise its balance sheet.
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.
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 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 August 2018. However, that alone cannot sustain its debt burden if no new subsea vessel jobs come in. Of Bumi Armada’s RM11 billion worth of borrowings, 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, Streets has lowered their target price (TP) per Bumi Armada share to 10 sen — the lowest of the lot.
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.
That said, some are also concerned about impairment risks. Streets 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.
Bumi Armada’s asset turnover ratio to vastly lag behind pre-2014 levels before the oil price plunge, hence implying bloated as-set-carrying values, and thus further impairment risks moving forward.
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