“Its highly leveraged financials remain an ongoing concern, as such the company needs to de-gear, ” Maybank IB Research said in a report yesterday. It said Bumi Armada had RM8.5bil net debt, which is 2.8 times the net gearing level and seven times the net debt-to-Ebitda.
PETALING JAYA: Maybank IB Research has maintained its “sell” call on Bumi Armada Bhd and highlighted that the latter’s stretched balance sheet remains a key concern.
“Its highly leveraged financials remain an ongoing concern, as such the company needs to de-gear, ” said the research house in a report yesterday.
It said Bumi Armada had RM8.5bil net debt, which is 2.8 times the net gearing level and seven times the net debt-to-Ebitda.
Nonetheless, Maybank IB said it has maintained its earnings estimates for Bumi Armada on a weaker second-half outlook.
It suggested that Bumi Armada should monetise part of its assets comprising floating production, storage and offloading (FPSO) vessels and offshore support vessels, seeking re-deployment opportunities for FPSO Claire, subsea construction vessels and reducing expenses, which will take priority overgrowth.
“We do not rule out continued impairment exercises, ” Maybank IB said.
“Unlike Bumi Armada’s peers, its poor financial predicament impedes its ability to capitalise on the FPSO global tenders, ” it added.
Maybank IB pointed out that Bumi Armada needs to de-gear, divest, impair, increase asset utilisation and cut cost to prospect for new jobs.
It said the strengthening of the crude oil price will be the most dominant near-term stock driver. “Seamless execution of its FPSOs/FSU projects in hand will contribute to a significant jump in earnings, ” it said.
However, it said the downside for the company includes its high gearing level. Weak cashflows could impede debt servicing efforts and further weakness in oil price will hurt its share price performance.
Last week, CGS-CIMB Research said that while Bumi Armada’s FPSO business was doing better operationally, the company would need another round of debt restructuring.
Notably, Bumi Armada had planned to sell its surplus assets to raise funds including its FPSO Claire, the two Caspian Sea vessels, and its 27-strong AHTS/PSV fleet, but global Covid-19 lockdowns prevented prospective buyers from travelling to inspect the assets and the oil price downturn also reduced interest and asset values.
“Bumi Armada is negotiating with some five to six banks to stretch the repayments over a longer period of time. We expect Bumi Armada to succeed as these bank debts are unsecured and banks will likely want to work with the company to secure eventual repayment, ” CGS-CIMB said.
It said potential re-rating catalysts include continued strong results from the FPSO segment, and securing bankers’ agreement to restructure payment of the US$160mil due in 2021.
“Downside risks include potential failure to sell its surplus assets that will be critical for Bumi Armada to obtain the funds required to settle its unsecured corporate borrowings.”