MISC may own 65% of Bumi Armada

PETALING JAYA: MISC Bhd may gain up to two-third majority control in Bumi Armada Bhd if a deal to inject its offshore assets into the latter for shares pans out, analysts said.

CIMB Research estimated that MISC’s offshore assets are worth RM11bil, based on a discounted cashflow valuation method. A sale of these assets in exchange for shares in Bumi Armada at RM1 each will see MISC own 65% of the latter company.

Bumi Armada currently has 5.87 billion outstanding shares. A higher valuation of Bumi Armada’s shares would reduce MISC’s ownership accordingly.

“Pricing must be good for it to make sense for MISC,” CIMB analyst Raymond Yap said in a note on Monday.

Over the weekend, StarBizWeek reported that MISC and Bumi Armada are in early stages of exploring a corporate exercise involving the consolidation of the floating production storage offshore (FPSO) businesses of both companies.

Bumi Armada, in a reply on Monday to a query by Bursa Malaysia, said the company were “continuously exploring merger, acquisition and disposal opportunities.”

MISC also told the exchange that its continously exploring opportunities and growth prospects.

The exercise, if it materialises, could involve MISC, 63%-owned by Petroliam Nasional Bhd, injecting its FPSO businesses into Bumi Armada via a share swap.

This could lead to Petronas ultimately owning a substantial stake in Bumi Armada, which subsequently transforms into the national oil and gas company’s FPSO division.

“Bumi Armada is the clear winner from this reported development as it presently does not have any domestic FPSO operations, and would automatically have an advantage in securing new contracts over other local and foreign operators in Malaysia,” AmResearch said in a report.

Bumi Armada currently has nine FPSOs compared with MISC’s six FPSOs. Combining the two fleets would result in Bumi Armada owning 15 FPSOs, thus leapfrogging from fifth to second-largest global FPSO operator.

Additionally, MISC also has four floating storage offloading, two floating storage units, two mobile offshore production units and the Gumusut-Kakap semisubmersible floating production system.

Bumi Armada rose 11.5 sen to close at RM1.11 on volume of 98.12 million shares. Meanwhile MISC was down one sen to RM9.22 on volume of 4.06 million shares.

“The deal may ultimately be beneficial for both parties, with Bumi Armada coming into the Petronas fold and gaining access to local contract awards, while also gaining access to MISC’s strong balance sheet for future expansion,” CIMB’s Yap said.

“MISC may get exposure to Bumi Armada’s current FPSO portfolio as well as pursue overseas opportunities jointly, utilising Bumi Armada’s wide network of overseas contacts. MISC’s CEO had said in a recent analyst meeting that it was considering potential purchases of charter-backed FPSO assets at attractive prices,” said Yap.

AmResearch said that based on the remaining contract tenures of MISC’s FPSOs, its back-of-the-envelope estimates show that the purchase price could reach RM1.6bil, or a price acquisition multiple of 10x.

“For Bumi Armada, this could enhance its financial year (FY) ended Dec 31, 2016 earnings per share (EPS) by 5% while MISC’s by a marginal 1%. If this deal materialises, MISC’s stake in Bumi Armada could reach 28% while Ananda Krishnan’s effective stake (via Objektif Bersatu Sdn Bhd) could drop from 34.9% to 27%,” said AmResearch.

Ananda controls Bumi Armada through Objektif Bersatu Sdn Bhd and Ombak Damai Sdn Bhd, which has a 34.92% and 7.07% stakes in the company respectively.

At its last price of RM1.11. Bumi Armada is trading at a 4% discount to its book value of RM1.16. Meanwhile, MISC is trading at a premium of 15% to its book value of RM8.03 per share.

Hong Leong Research estimates that MISC’s offshore facilities business could be valued at RM10.5bil, with earnings contribution of RM869mil in FY16.

This will translate into an implied acquisition valuation of 12.1x price earnings ratio (PER) for FY16, which is almost similar to Bumi Armada’s current FY16 PER at 12.5x. Hence, this will be neutral and no dilution to its earnings per share.

Hong Leong maintains its BUY call on Bumi Armada with an unchanged target price of RM1.15.

Source: http://www.thestar.com.my/Business/Business-News/2015/11/11/MISC-may-own-65-of-Bumi-Armada/?style=biz