This article first appeared in The Edge Financial Daily on October 18, 2019 - October 24, 2019

PETALING JAYA: Loss-making Perdana Petroleum Bhd is eyeing a return to the black next year, upon completion of its debt restructuring exercise, supported by an expected improvement in conditions of the offshore marine services segment.

Its executive director Bailey Kho Chung Siang said the group will “definitely” turn around its operations next year, as it expects demand for vessels to increase in line with heightened upstream activities.

“We will be profitable in 2020,” Kho told reporters after the group’s extraordinary general meeting (EGM) yesterday. “We are cautiously confident nevertheless, because we have gone through difficult times over the past few years.”

“We are seeing better times ahead, with better utilisation and charter rates throughout this year, which could extend into next year,” Kho said, adding that vessels are in high demand amid a shortage in Malaysian waters.

He said Dayang Enterprise Holdings Bhd, the major shareholder of Perdana Petroleum, has seen a rise in drilling activity, which translates into higher demand for anchor handling tug supply vessels.

Perdana Petroleum’s utilisation rate has picked up considerably, said Kho, from 36% in the first quarter of this year to 56% in the second quarter. He said the utilisation rate is even higher in the third quarter.

Kho also pointed out that Petroliam Nasional Bhd (Petronas) is ramping up capital expenditure (capex) in the second half of the year, as the national oil major had been slow in dishing out contracts during the first half of the year.

In September, Petronas announced that it spent RM15.7 billion on capex, which posed a question over whether it would be spending less this year, although it gave assurance that it was sticking to the RM50 billion targeted capex for the year.

Currently, Perdana Petroleum’s order book is largely made up of short-term charters, ranging from one month to one year, with the group securing RM320 million worth of contracts since the start of the year.

It is currently delivering on RM200 million worth of contracts, which means that it will need to replenish its depleting order book.

The group is already eyeing and bidding for longer-term charters, hoping to secure more contracts next year, although Kho declined to reveal specifics.

“We are looking to secure more contracts for next year, maybe a one-year-plus-one-year contract or if we’re lucky, secure a three-year or even five-year long-term charter. We [are] looking at both locally and internationally.

“As long as our fleet of 16 vessels can be deployed and go on longer-term charters, we should be on the right path to profitability,” he said.

Despite the higher activity, the group does not see a need to expand its fleet currently, as it intends to focus on its restructuring exercise.

“We have just gone through a massive corporate exercise. We need to be realistic and not talk about expansion and growing the company yet. We just want to deliver the numbers and results to our shareholders,” Khoo said.

At Perdana Petroleum’s EGM, shareholders approved a proposed rights issue of redeemable convertible preference shares of up to RM506.01 million in value, which forms a part of its debt restructuring plan.

Out of the amount, RM455 million will be issued to Dayang to pare off its debt to the major shareholder. Based on its circular to shareholders, the group’s gearing will be reduced from 1.36 times as at end-2018 to 0.12 times upon completion of the exercise.

“Issuing equity saves us from interest charges of about RM20 million to RM30 million per year [versus maintaining debt]. Given the lower debt level, increasing charter rates and utilisation rates, it will not take a lot of efforts for us to return to profitability,” said Kho.