Bumi Armada raises equity through rights issue

Objektif Bersatu, the main shareholder of the Malaysian oilfield services provider, divests stake to subscribe to the rights offering.

The main shareholder of Malaysian oilfield services provider Bumi Armada Berhad divested part of its stake on Wednesday in order to subscribe to its right issue, announced the same day.

Objektif Bersatu launched a 155 million cum-rights and bonus placement at a fixed price of M$2.96 at lunchtime on Wednesday. This represented a 4.8% discount to a last price of M$3.11 and an M$9.2% discount to the previous day's M$3.26 close. 

Lead managers CIMB, Credit Suisse, Maybank and UBS also held an upsize option of 60 million shares, which was exercised, bringing total proceeds to M$636.4 million ($201.4 million). The accelerated placement represented 7.3% of the company’s issued share capital and reduces Objektif Bersatu’s stake from 42.3% to 35%.

It was a big deal relative to the company's current three-month average trading volume, equating to roughly 80 days trading volume, according to a banker close to the deal.

Sources say about 70 accounts were allocated stock, with the top 15 accounts taking up 70% of the allocation. The book was made up of a range of domestic long-only institutional investors and hedge funds, with both existing shareholders and new investors participating, according to a second banker.

Investors who participated in the deal are entitled to the rights and bonus shares on the basis of one rights and one bonus share for every two placement shares. The renounceable rights offering, which was also launched on Wednesday, comprises up to 1.48 billion shares, or 25% of Bumi's enlarged share capital. 

The potential M$1.997 billion ($632 million) offering has been structured on a one for two basis, with pricing at M$1.35, which represents a 32% discount to the company's theoretical ex rights price of M$1.98. This, in turn, is based on a five-day volume weighted average price of M$3.29.

Objektif Bersatu has undertaken to subscribe to at least 511.5 million rights shares, equivalent to 35% of the offering, with the non-committed portion fully underwritten. 

The share price closed Wednesday down 6.75% to M$3.04. Year-to-date it is down 24.6% with selling pressure beginning in mid-May and gathering steam in mid-June. 

At current levels, the stock is trading at 19 times 2014 earnings according to Bloomberg.  In a research report published on August 15, UOB Kay Hian suggested recent share price underperformance could be down to two key reasons, “share overhang as some of the major shareholders look to pare down their stake as they are not keen to participate in the rights issue and concerns over the higher execution risk involved as Bumi executes two major contracts concurrently.”

However, UOB Kay Hian believes the rights issue marks a good move for the company, as it will strengthen its balance sheet by reducing net gearing from 0.86 to 0.36. It also says the company has an established track-record delivering FPSO's on time and within budget, bolstered by a long-term partnership with Keppel Shipyard.

A re-rating is, therefore, likely to hinge on investors confidence in the deepwater oil and gas sector, plus their belief in the company's ambitious expansion plans. Bumi Armada currently has a fleet of eight FPSO (floating, production, storage, and offloading) vessels, which process and store oil in remote oilfields before it can be offloaded onto a tanker. 

This makes it the world's fifth larger player behind Teekay Offshore, which is trading at a much higher valuation of 176.8 times 2014 earnings. But Bumi plans to overtake it and is currently bidding for a further six projects mainly in Africa - Ghana, Nigeria, Namibia, Mexico, Indonesia and Brazil.

Within the last month, the company has also won two big contracts in Indonesia and Angola, which will add a further $4.8 billion to its order book. The former is to supply an FPSO to Husky-Cnooc's Madura oilfield on a 10-year contract, while the latter is to supply an FPSO on a 12-year contract to Eni.

Proceeds are being used to fund the new contracts. Bumi Armada has said it plans to purchase at least one new FPSO (floating, production, storage and offloading) vessel, build or purchase at least two OSV's (offshore support vessels), at least two SURF vessels (subsea umbilicals, risers and flowlines) and acquire EOR (enhanced oil recovery) equipment.

Last week, the company released its first half earnings, which saw revenues grow 22.6% year-on-year to M$1.058 billion. Net profit, however, fell 26.4% to M$98.4 million, partly due to higher taxes.

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