Perdana Petroleum Bhd (Dec 20, 69.5 sen)
Maintain hold with target price of 70 sen: Cash flows have eased following the refinancing of its RM130 million debt, originally due in 2012/13. While this is a positive, the operating outlook remains a challenge. Old vessels continue to drag on earnings, while the direction over its 27% stake in Petra Energy Sdn Bhd remains unclear. Perdana remains a “hold” with an unchanged target price of 70 sen (0.7 times price-to-book value).
Perdana recently secured new borrowings totalling RM160 million from offshore banks (5% interest per year), stretching its debt repayment over the next seven years (till 2018). The proceeds, largely used to settle its outstanding debts (ex-bond) of RM130 million (6.6% per year interest) due in 2013 has immediately lightened the drain on its cash flow. However, Perdana will incur a one-off charge from the refinancing exercise, likely to be recognised in 4QFY11 or 1QFY12.
Without the refinancing, Perdana would have been burdened with hefty debt settlements in 1QFY12 (RM45 million) and 1QFY13 (RM75 million). Cash flow would be strained and could force Perdana to undertake a cash call or fire sale exercise. Separately, it has another RM105 million serial bonds outstanding. We reckon that Perdana is unlikely to seek refinancing. It will pay off the loans in three equal tranches (March 2012, September 2012, March 2013).
Perdana’s eight ageing vessels (27 to 37 years old) are currently laid up. They generate zero income and incur depreciation and maintenance costs of RM8 million to RM10 million per year. Perdana has been actively looking for buyers but has been unsuccessful to date due to weak market conditions. Conservatively, we estimate these vessels to be worth RM20 million at scrap value; it could potentially write off RM60 million from its balance sheet.
Its 26.9% stake in Petra Energy remains a concern. It has one board seat (non-independent, non-executive) in Petra but has limited control over the operations. Petra’s results have disappointed of late, plagued by cost overruns. We rule out the sale of its stake at this juncture unless there is a need to raise cash immediately. At yesterday’s closing price of RM1.07, Perdana’s stake is worth RM61.7 million, a fraction of Petra’s historical high of RM5.60 (July 2007). — Maybank IB Research, Dec 20
This article appeared in The Edge Financial Daily, December 21, 2011.
Maintain hold with target price of 70 sen: Cash flows have eased following the refinancing of its RM130 million debt, originally due in 2012/13. While this is a positive, the operating outlook remains a challenge. Old vessels continue to drag on earnings, while the direction over its 27% stake in Petra Energy Sdn Bhd remains unclear. Perdana remains a “hold” with an unchanged target price of 70 sen (0.7 times price-to-book value).
Perdana recently secured new borrowings totalling RM160 million from offshore banks (5% interest per year), stretching its debt repayment over the next seven years (till 2018). The proceeds, largely used to settle its outstanding debts (ex-bond) of RM130 million (6.6% per year interest) due in 2013 has immediately lightened the drain on its cash flow. However, Perdana will incur a one-off charge from the refinancing exercise, likely to be recognised in 4QFY11 or 1QFY12.
Without the refinancing, Perdana would have been burdened with hefty debt settlements in 1QFY12 (RM45 million) and 1QFY13 (RM75 million). Cash flow would be strained and could force Perdana to undertake a cash call or fire sale exercise. Separately, it has another RM105 million serial bonds outstanding. We reckon that Perdana is unlikely to seek refinancing. It will pay off the loans in three equal tranches (March 2012, September 2012, March 2013).
Perdana’s eight ageing vessels (27 to 37 years old) are currently laid up. They generate zero income and incur depreciation and maintenance costs of RM8 million to RM10 million per year. Perdana has been actively looking for buyers but has been unsuccessful to date due to weak market conditions. Conservatively, we estimate these vessels to be worth RM20 million at scrap value; it could potentially write off RM60 million from its balance sheet.
Its 26.9% stake in Petra Energy remains a concern. It has one board seat (non-independent, non-executive) in Petra but has limited control over the operations. Petra’s results have disappointed of late, plagued by cost overruns. We rule out the sale of its stake at this juncture unless there is a need to raise cash immediately. At yesterday’s closing price of RM1.07, Perdana’s stake is worth RM61.7 million, a fraction of Petra’s historical high of RM5.60 (July 2007). — Maybank IB Research, Dec 20
This article appeared in The Edge Financial Daily, December 21, 2011.
