Journey to Wealth
MISC Berhad - Monetising 50% of Gumusut-Kakap
News MISC has announced that it had entered into a conditional share purchase agreement ('SPA') with E&P Venture Solutions (EPV) in relation to a proposed 50% share disposal in GKL (the investment holding company of the Gumusut-Kakap Semi-FPS that is tentatively expected to be operational in mid-2013).
EPV is a wholly-owned subsidiary of Petronas Carigali (PCSB), the E&P arm of Petronas.
Total proceeds amount to USD1.7b (RM5.3b) which is due to: 1) cash consideration for share disposal amounting to USD305.7m, (RM934.4m); and 2) cash receipt amounting to USD1.4b (~RM4.4b) in lieu of settlement of the amount owing by GKL to MISC pursuant to GKL's acquisition of the Gumusut-Kakap Semi-FPS from MISC. GKL will repay the amount owing to MISC via a short-term loan obtained from PETRONAS.
MISC's rationale for the exercise was to pare down its debts and enabled it to take on any new investments that might arise going ahead.
Comments We are neutral on the near-term impact of the exercise.
The asset monetising route illustrates that MISC is consciously looking to alleviate its financial burdens and enhance its focus on the offshore division, which is still profitable. However, it is also a signal that the shipping industry continues to be very volatile and hence, the need for MISC to rationalise its costs.
The sale of 50% of Gumusut-Kakap will also result in cash flows from the said project being equity-accounted (versus being consolidated when it was 100% owned).
Outlook The start-up of Gumusut-Kakap FPS is scheduled for end April 2013.
Additional LNG fleet and capacity are expected from 2H2012 onwards, which should enhance the LNG division's earnings.
Tough time, however, remains for the Petroleum and Chemical business due to volatile charter rates, unyielding bunker costs and the imbalance in the demand and supply of vessels.
Forecast We are maintaining our earnings estimates at this juncture pending further guidance from management in regard to further details on the Gumusut-Kakap FPS contract.
Rating MAINTAIN MARKET PERFORM
Valuation Our SOP-based target price remains at RM4.66. We have stripped out the value of the assets of Petroleum and Chemical Shipping as we expect the division to remain loss-making in the near future.
Risks 1) Lower freight rates, 2) higher bunker costs and 3) further unexpected provisions from the winding up of the Liner business.
Source: Kenanga
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