Following PERISAI being rejected from postponing its MTN maturity date to February next year, the company is trying to engage with note holders on an alternative solution for its fresh financing, of which USD20m is earmarked for the bond repayment. In view of higher insolvency risk, we keep our UNDERPERFORM rating on PERISAI with a lower target price of RM0.11/share, pegging to 0.2x CY17 PBV.

Rejection from MTN holders. Yesterday, PERISAI announced that the proposal of PERISAI to extend the maturity date of the SGD125m bond to 3 February 2017 and other related terms have been rejected by the MTN holders. Meanwhile, together with its joint-venture partner, Emas Offshore Limited (EOL), it had on 30th September 2016 received an indicative offer of financing from a financial institution where part of it amounting to USD20m is earmarked for the note repayment.

Fresh financing aid. Given that PERISAI had missed the repayment for the MTN, we believe the note holders reserved the right to file a winding up petition to PERISAI on the presumption that the company is insolvent. Having said that, PERISAI intends to engage with note holders on alternative solutions to avoid a cross default. While the entire financing amount was not disclosed, the fresh financing of USD20m is earmarked for note repayment, safeguarding a portion of the coupon and principal repayment.

Still in discussion. Recap that PERISAI is still in discussion on the exercise of the put option on SJR Marine. Recall that PERISAI has a put option to sell off its 51% stake in SJR Marine, which owns the pipe-laying barge, Enterprise 3, to EOL within a month prior to the expiry of the put option at the price equivalent to the net asset value of the remaining stake in SJR marine (estimated USD43m). EOL is currently also in a stretched cash flow position and it might not be easy for the company take up the remaining stake under such challenging environment.

Bleak earnings outlook. Going forward, PERISAI’s earnings outlook is expected to stay weak due to idling assets. As evident in 2Q16 results regarding the non-compliance of the interest cover ratio, PERISAI most probably won’t be able to meet its EBITDA to interest expense ratio of 3x in the coming quarters. This is mainly due to the reduction rate in its FPSO, Perisai Kamelia whereby the charter rates are pegged to oil prices. No changes to our FY17-18 earnings forecasts in view of flattish oil prices outlook.

Retain UNDERPERFORM call with lower TP of RM0.11/share. Overall, we see no near-term rerating catalysts and selling pressure on the stock remains heavy over its lingering financial situation. We maintain our UNDERPERFORM call with a lower target price of RM0.11 (from RM0.16 previously) as we peg to lower 0.2x FY17 PBV.

Upside risks to our call are: (i) new contracts for its Jack-up rig, (ii) renewal of its FPSO contract or redeploy to other fields, and (iii) successful restructuring of its debt portfolio.

Source: Kenanga Research - 4 Oct 2016