CIMB says merger deal to benefit MISC and Bumi Armada

KUALA LUMPUR: CIMB Research says the merger deal between MISC Bhd and Bumi Armada Bhd offers an opportunity for MISC to grow its portfolio of stable cashflow assets, while growth in the oil and gas environment is stagnant.

“If the pricing is right, this deal could be good for both companies,” the research house said in a note on Monday. 

StarBizweek earlier reported that MISC is in preliminary discussions to merge its FPSO assets with Bumi Armada’s, in exchange for shares in the latter company. 

MISC currently has 12 FPSO assets, while Bumi Armada owns nine FPSOs (six in operation, three under conversion). 

CIMB said the deal would ultimately be beneficial to both parties, with Bumi Armada coming into the Petronas fold and gaining access to local contract awards, while also gaining access to MISC’s strong balance sheet for future expansion.

Meanwhile, MISC may get exposure to Bumi Armada’s current FPSO portfolio, as well as pursue overseas opportunities jointly, utilising Bumi Armada’s wide network of overseas contacts. 

MISC’s CEO had said in a recent analyst meeting that it was considering potential purchases of charter-backed FPSO assets at attractive prices. 

At the current price, Bumi Armada shares may be relatively low-risk consideration for MISC. Its share price of RM1 is below its IPO price of RM1.52 and close to its all-time low. It is also lower than its book value of RM1.16 at end-2Q15 even after substantial write-downs of its OSV carrying values.

However, whether Usaha Tegas is willing to accept this valuation is another matter, said CIMB.

The research house estimates that MISC’s offshore assets are worth RM11bil. A sale of these assets in exchange for shares in Bumi Armada at RM1 each will see MISC own 65% of the latter company. A higher valuation of Bumi Armada’s shares would reduce MISC’s ownership  accordingly.

If the deal materialises, CIMB expects MISC to seek exemption from having to make a mandatory general offer for the remaining Bumi Armada shares. However, its free float may decline below the required 25% minimum, which will need to be addressed.