Bumi Armada may need to raise funds for African ventures

KUALA LUMPUR: Bumi Armada Bhd may need to raise funds up to US$311mil if it wants to bid for contracts in Africa, says CIMB Equities Research.

It said on Thursday Bumi Armada is planning to bid for several floating production storage and offloading (FPSO) contracts, which could contribute to future earnings. 

These contracts include ONGC's KG-DWN98/2 project, Hess’s TCTP offshore Ghana (Deepwater Tano-Cape Three Points), Eni NAE’s Zaba Zaba field offshore Nigeria, and Petrobras’s Buzios development offshore Brazil. 

“In the event that Bumi Armada wins both the ONGC (FPSO capex of US$1.2bil) and Hess (US$1bil) projects, we estimate it may need to inject in equity of US$311mil (US$176mil for ONGC and US$135m for Hess), based on its 49% equity stake in the ONGC project and 45% equity stake in Hess, and assuming 70% project financing,” it said.

CIMB Research cited that based on Yinson’s deal to reduce sell a 26% stake in Yinson Production (West Africa) Pte Ltd to a consortium of four Japanese parties, it expects Yinson to make a 1.5 times return on its equity capex. 

“Assuming this same return, Bumi Armada can potentially raise US$315mil from a sale of 50% stake in FPSO Olombendo (capex of US$1.4bil), which is more than enough to settle most of its RM1.5bil in short-term revolving credits.  

“However, this means that Bumi Armada will still need to raise new funds for the US$311mil in equity capex for the ONGC and Hess projects, for which a rights issue is one of the fund-raising options. In our view, a rights issue paired with contract wins is not likely to be perceived negatively by the market,” it said.

Bumi Armada’s lacklustre share price performance over the past three months reflects the delays it has faced in bringing its two largest FPSO projects – the Olombendo and the Kraken – to full acceptance. 

The Olombendo has been facing technical issues and as at late Aug, was still earning at 80% of its bareboat charter rate. 

“We maintain Add, with an unchanged sum-of-parts based target price (94 sen), as a rights issue paired with project wins is unlikely to be perceived negatively by the market,” it said. The share price was last traded at 72 sen.