This article first appeared in The Edge Financial Daily, on April 1, 2016.

Perdana Petroleum Bhd
(March 31, no transaction)
Maintain neutral with an unchanged target price of RM1.35: Perdana Petroleum Bhd has announced the termination or cancellation of the memorandum of agreement dated June 23, 2014 for the acquisition of the 500-men accommodation work barge SK316.

We understand that to date there has been no potential charter contract identified in the current weaker oil price landscape, and thus would only incur additional operating costs and finance costs for servicing the loan. 

This would further strain Perdana’s balance sheet and cash flows assuming SK316 remains idle for a prolonged period. 

Perdana had written off RM36.1 million in financial year 2015 in anticipation that the vessel could be cancelled. Therefore, there will be no further financial impact for 2016. 

The amount written off is the 20% deposit for SK316, which has been agreed with Nam Cheong Ltd. In a recent meeting with Nam Cheong, the shipbuilder also concurred that it is in cognisance of the current market conditions, and had assumed outcomes where the cancellation of vessel deliveries could occur. 

Dayang Enterprise Holdings Bhd will synergise with Perdana on activities, such as hook-up and commissioning and topside structural maintenance mainly for the brownfield market, which has been less adversely affected by the current volatile low oil landscape. 

Following the group’s management restructuring and loan refinancing in 2015, the new management is positive that Perdana can improve to a small operational profit this year through improved efficiencies. 

The group is also exploring opportunities in regional and international markets. In the interim, we are awaiting the listing status outcome of Perdana, for the group to be reinstated with its syariah-compliant status, following the proposed RM650 million loan refinancing via a murabahah sukuk programme. — Public Investment Bank, March 31