Dayang’s 60.5% owned subsidiary, Perdana (Not-Rated) has granted CDRC’s approval for assistance to restructure its debt portfolio. Perdana is required to submit a restructuring plan within 60 days. We believe fleet rationalisation is one of the options to raise funds even at discounted valuations. Despite the debt restructuring could be long term positive to Dayang with the possibility of not being needed to fund Perdana’s debt repayment substantially in the future, we downgrade the stock to HOLD recommendation with lower TP of RM0.63 (from RM0.67) for lower OSV valuations in line with its industry peers pending a clear restructuring plan.

NEWSBREAK

Dayang’s 60.5% owned subsidiary, Perdana Petroleum Bhd (Not-Rated) announced that it had received approval on 2 July 2018 from the Corporate Debt Restructuring Committee (CDRC) for assistance to mediate between the company and some of its subsidiaries with the respective financiers/Sukuk-holders.

This is a proactive measure taken by Perdana to (i) streamline its operations, (ii) optimise its financial resources and (iii) safeguard its business from any potential financial distress. With the approval, the company is required to comply with the followings;

i. Submit a proposed debt restructuring (PRS) scheme within 60 days from the day of CDRC approval letter

ii. Perdana’s admission is limited to 12 months or upon signing of a debt restructuring agreement, whichever is earlier and

iii. The scheme must comply with the CDRC’s restructuring principles for Perdana to continue to remain under the Informal Standstill Arrangement with the respective financiers.

HLIB’s VIEW

Following its industry peers. It is not entirely surprising for Perdana to follow its industry peers, Jasa Merin (M) Sdn Bhd and Alam Maritim Resources Bhd’s footsteps to seek assistance from CDRC for debt restructuring. Note that Perdana has total borrowings of RM713.7m, including RM521.2m and RM72.1m term loans as well as cash balances of RM120.2m as of end-1Q18. We understand that Perdana has repaid the RM90m Sukuk tranche 2 payment which was due 28 April this year with the help of Dayang. Thus, the proposed restructuring plan could be positive to Dayang with the possibility of not being needed to fund Perdana’s debt repayment substantially in the future.

Ensuring Dayang’s operations unaffected. Currently 14 out of 16 Perdana’s vessels are working, in which 7-8 of them are working for Dayang. Therefore, we reckon that the CDRC’s admission will ensure these operations will not be affected by debt restructuring. Having said that, vessel disposal, in our view, is one of the potential options to raise funds even at discounted valuations. .

Forecast: Unchanged.

Downgrade to HOLD, TP lowered to RM0.63. Pending a clear restructuring plan, we downgrade the stock to HOLD recommendation with lower TP of RM0.63 (from RM0.67) as we conservatively value Perdana at 0.2x (from 0.4x) in our SOP, in line with its industry peers but still higher than Perisai’s valuation which is already in PN17 status.

Source: Hong Leong Investment Bank Research - 5 Jul 2018