This article first appeared in The Edge Financial Daily on March 4, 2020 - March 10, 2020

KUALA LUMPUR: The latest round of financing announced by floating production storage and offloading (FPSO) operator Bumi Armada Bhd is seen as giving it more time to resolve its tight cash flow position.

But having recategorised the bulk of its short-term debt to long-term, analysts are mixed on the progress of the company’s road to turn around.

On one hand, the view is that Bumi Armada needs to lay out its restructuring plan more clearly to address its high debt level, while another pointed to the improving operating cash flow as a positive sign.

Bumi Armada said on Monday it had secured a loan facility of US$64.3 million (RM270.7 million) due Dec 31, 2021. The loan was obtained from Singapore’s ING Bank NV by Bumi Armada’s wholly-owned unit Armada TGT Ltd.

The new loan comes as good news for the company, which is working hard to reduce its short-term liabilities and pare down its overall debt to clean up its balance sheet.

In its latest quarterly results’ note, Bumi Armada said its lender for Armada Kraken Pte Ltd (AKPL) has agreed to remove the risk of having to prepay its long-term loan of RM1.33 billion, previously classified as short-term liability due to non-compliances related to the FPSO Kraken vessel project.

With the AKPL loan set to be recategorised, Bumi Armada’s short-term debts now amount to RM1.145 billion, comprising RM813.24 million term loans and another facility of RM301.55 million.

In November last year, Bumi Armada’s major shareholder Usaha Tegas Sdn Bhd provided commitment to financing US$75 million to refinance an existing facility and to fund Bumi Armada’s 30% equity interest in a joint-venture project in India.

Coupled with this latest loan of RM271 million, that leaves another RM874 million short-term debt which the company has to pay off or refinance in the near term.

Between October and December 2019, Bumi Armada paid off RM389.13 million worth of borrowings.

Amid the slew of good news, one analyst with a local investment bank maintained that the crux of the problem is the group’s high gearing. Long-term borrowing still stands at RM8.345 billion after including the recategorised AKPL loans.

Finance costs for the year stood at RM555.5 million from RM522.15 million the year before — more than its gross profit of RM553.44 million for the same period.

“The financing is a good short-term relief to support its cash flow. But considering its predicament, it might find it difficult to negotiate the terms of financing,” an analyst with a regional bank told The Edge Financial Daily.

“Considering its high debt level, refinancing is not a long-term solution. It still has to figure out how to turn things around.

“It helps if Bumi Armada can secure redeployment for FPSO Claire, or if it manages to monetise its FPSO assets while still retaining control, such as its prized asset FPSO Olombendo,” the analyst added.

Another analyst with a local investment bank, meanwhile, highlighted the company’s improving operating cash flow of over RM700 million last year — adding that it could improve further from better contribution from FPSO Kraken on improved uptime performance.

“It (Bumi Armada’s financial position) does not seem as alarming as it once was,” said the analyst. “It depends on the discount warranted on this company … considering the negative surprises previously.”

The counter, which is linked to tycoon Ananda Krishnan, has a wide range of target price (TP) from a low of 20 sen to a high of 75 sen per share, with an average TP of 48 sen per share.

It closed unchanged at 31 sen yesterday, with a market capitalisation of RM1.82 billion. Bumi Armada was among the top active counters on Bursa Malaysia, with some 72.97 million shares traded.

The counter retreated from its high of 54 sen in January, following weaker oil prices amid concerns about global demand due to the Covid-19 outbreak, and further dragged down by weaker results for the fourth quarter ended Dec 31, 2019 (4QFY19).

For the quarter, the group booked an impairment amounting to RM233.6 million on accrued lease rental in relation to the unsuccessful legal claim against Woodside Energy pertaining to the wrongful termination on FPSO Claire. It is currently filing an appeal against the decision.

Meanwhile, there is also the possibility of partial write-back on impairment worth RM479 million made in 4QFY18 arising on FPSO Kraken, which saw improved uptime performance last year.