Tuesday, March 26, 2019

Armada ... STILL WORRYING AND ALARMING...'Downside Risk' Despite Nearing Loan Agreement.

Despite nearing a US$500mil (RM2.03bil) loan deal, Streets reckon Armada’s downside risk is growing, with deteriorating fundamentals from both floating production storage and offshore (FPSO) and offshore marine services (OMS) segments.

The fundamental drag on Bumi Armada is its Ebitda deterioration from the OMS segment. This is even if the FPSO earnings stabilise. 

At the least, the group must replenish the OMS contracts and return to profitability, as well as resolve the uncertainties of loan refinancing to support upside catalysts for the stock.

Overall, concerned are still over the group’s long-term ability to repay loans.

Streets estimated that out of Bumi Armada’s RM10bil loans, about RM6bil to RM7bil are project loans for the FPSO segment, while the remainder of more than RM4bil are unsecured loans that were likely incurred to support the group’s expansion in the OMS segment. The OMS segment comprises offshore support vessels and subsea construction vessels.

On 25 March 2019 it was reported that Bumi Armada was nearing an agreement for a US$500mil loan, which will give the energy firm more time to sell assets and restructure its business in a bid to return to profitability.

Banks are reported to be finalising a five-year credit facility and Bumi Armada is expected to sign the loan agreement with lenders. The funds will be used to refinance debts that are maturing in May 2019 and for working capital.

Bumi Armada has an immediate RM1.5bil of unsecured term loans that needs to be refinanced and the guidance for a refinancing outcome had been delayed several times to the second quarter of 2019. 

This brought many uncertainties in the market, as to whether the company may have to resort to an unfavourable outcome of a rights issue or default on its loans.

Additionally, Bumi Armada is seeking a solution with the sukuk holders for the RM1.5bil of sukuk murabahah which had its covenant breached, while the RM1.8bil project loan for Kraken is also facing problems on poor Ebitda generation.

At RM0.19 its share price remains expensive versus the risk, trading at more than 10 times enterprise value to Ebitda (EV/Ebitda), in view that the Ebitda generation of the relevant businesses is still declining.

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