CIMB Research said demand for jack-up rigs in Asean has more than halved since 2014
KUALA LUMPUR: CIMB Equities Research is retaining its Reduce outlook for UMW Oil and Gas (UMW-OG) as charter rates remain very low though utilisation rates for the jack-up rigs are likely to hit 80% over the next two to three years, from its earlier assumption of 65%.
The research house said on Thursday the expectations of higher utilisation rates prompted it to reduce its loss forecasts.
“We also raise our ex-rights target price to 31 sen, although our cum-rights target is reduced to 43 sen on a technicality.
“Separately, we believe that UMW-OG shares are at risk of a near-term selloff post the completion of UMW Holdings’ dividend-in-specie on July 11,” it said.
In its research note, it said its review of UMW-OG’s current outstanding charter contracts suggests that its jack-up rigs are heading for a combined utilisation of around 61.8% in FY17F and 47.5% in FY18F, on the assumption that all the option periods are exercised.
However, it believes that UMW-OG can achieve 80% utilisation for both years, as more drilling contracts are likely to be awarded in Malaysia, and it is also bidding for a slew of overseas contracts.
Petronas’s guidance to its suppliers is that it will require some eight to 10 jack-up rigs on a full-year basis for the next three years, i.e. FY17F to FY19F, on the basis of an average crude oil price of US$45 a barrel, which is very conservative.
“Minus Perisai’s one jack-up rig, this means that UMW-OG has the opportunity to offer for employment all of its seven jack-up rigs to Malaysian charterers. However, we have cut our day rate assumptions from US$75,000/day to US$72,500/day.
UMW-OG is expected to convene an EGM by late-July to consider its proposals to issue new rights shares together with free warrants.
“The resolutions also include a whitewash waiver for Permodalan Nasional Bhd (PNB) from undertaking a mandatory general offer (MGO), and for the issue of new RCPS to PNB,” it pointed out.
“The rights issue proposes to raise RM1.8bil in cash, of which RM1.5bil will be used to repay borrowings, principally revolving credit (RC) debt.
“As the RC lenders are clamouring for repayment, a successful rights issue is critical to prevent a liquidity crisis, in our view,” it said.
PNB will own 45.5% in UMW-OG after UMW Holdings’ dividend-in-specie is completed on July 11, hence the resolutions for the rights and warrants issues should be passed easily, as PNB can vote and a simple majority will carry the resolutions.
“However, PNB cannot vote for the resolutions for the whitewash exemption and RCPS (redeemable convertible preference shares issue, as PNB is an interested party there, thus requiring other shareholders to vote in favour of them.
“We believe that all EGM resolutions will be passed, as the implications otherwise are severe,” it said.
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