Bumi Armada Announces Major Capital Reduction and Potential Share Buy-Back: What Investors Need to Know

Introduction

Bumi Armada Berhad has announced two significant corporate proposals that could impact its financial position and share price. The company, with CIMB Investment Bank Berhad as Principal Adviser, plans to seek shareholder approval for:

• Proposed Capital Reduction – a reduction of RM1.95 billion from its issued share capital to eliminate accumulated losses.
• Proposed Share Buy-Back – authority to purchase up to 10% of its issued ordinary shares, subject to sufficient retained earnings.

Key Points of the Proposals

1. Capital Reduction Details
   • Bumi Armada will reduce its issued share capital by RM1.95 billion under Section 117 of the Companies Act, 2016.
   • The credit from this reduction will offset accumulated losses of approximately RM1.45 billion (as at FYE 2024), with the remainder credited to retained earnings.
   • This move does not affect the number of shares in issue, shareholdings of shareholders, or involve any payout to shareholders.
   • The Capital Reduction is required to restore positive retained earnings, mainly to enable the company to undertake the share buy-back and better reflect its current financial health.
2. Background to Accumulated Losses
   • Accumulated losses of RM1.45 billion were primarily due to impairment losses on investments in subsidiaries: RM1.92 billion in FYE 2019 and RM880.8 million in FYE 2020.
   • The impairments resulted from earlier asset write-downs, most notably a RM2.24 billion impairment in FYE 2018 linked to the Armada Kraken FPSO’s underperformance and industry challenges in the OSV segment.
3. Impact of Capital Reduction
   • After the reduction, retained earnings are projected to be positive at RM498.6 million for the Company (pro forma), and RM2.21 billion for the Group, after estimated expenses.
   • This positions Bumi Armada to undertake share buy-backs and possibly resume dividend payments in the future.
4. Proposed Share Buy-Back Mandate
   • Bumi Armada seeks approval to buy back up to 10% of its shares (up to 592.8 million shares) on the open market.
   • Purchase price cap is 15% above the 5-day VWAMP preceding each buy-back.
   • Resale of treasury shares can be at or up to 5% below the 5-day VWAMP, but not below purchase cost and subject to a 30-day holding period.
   • Shares bought back may be cancelled, held as treasury shares, resold, or distributed as dividends, at the Board’s discretion.
5. Rationale and Potential Advantages
   • Capital Reduction rationalises the balance sheet and enables future capital management options, including buy-backs and dividends.
   • Share buy-back could enhance EPS and share value by reducing shares in issue, especially if shares are undervalued.
   • Provides flexibility to reward shareholders with share dividends or use treasury shares as deal consideration in corporate transactions.
6. POTENTIAL Impact on Shareholders and Share Price
   • If the share buy-back is fully implemented (all shares purchased and cancelled), substantial shareholders’ percentage holdings will increase (e.g., Objektif Bersatu Sdn Bhd rises from 34.55% to 38.39%).
   • EPS should improve, as profits will be spread across fewer shares. This could potentially support the share price.
   • The company will only proceed with buy-backs if it does not breach the 25% public shareholding spread requirement.
   • There is no obligation for the Board to actually buy back shares even if the mandate is approved.
7. Risks and Disadvantages
   • Buy-backs reduce available retained earnings for dividends and may use up financial resources that could be invested elsewhere.
   • Use of borrowings to fund buy-backs could increase gearing, but the company will ensure financial prudence.
8. Other Considerations
   • The company has not purchased any of its own shares in the past 12 months.
   • There are no implications under the Malaysian Code on Take-Overs and Mergers unless a shareholder crosses the mandatory offer threshold, in which case an exemption may be sought.
   • There are currently only 70,000 unvested shares under the Management Incentive Plan, which are not affected by these proposals.
9. Approvals and Timeline
   • Shareholder approval will be sought at an EGM. The company targets completion of the Capital Reduction by Q3 2026, after which the share buy-back mandate becomes effective.
10. Directors’ Statement
    • The Board unanimously supports the proposals as being in the best interests of the company and its shareholders.

What Shareholders Should Note (Potentially Price Sensitive Information)

• Major Balance Sheet Repair:
  The elimination of RM1.45 billion in accumulated losses is a significant step, allowing Bumi Armada to turn its retained earnings positive and potentially resume dividends or execute share buy-backs.
• EPS Enhancement:
  The share buy-back, if executed, will boost EPS and the shareholding percentage of existing investors, adding value especially if current share prices are below intrinsic value.
• Shareholder Value:
  The flexibility to cancel shares, hold as treasury, or distribute as dividends provides options for capital management that can support the share price.
• Market Impact:
  The proposals could be share price accretive, especially if investors value the turnaround in retained earnings and the company’s ability to buy back undervalued shares.
• Strategic Flexibility:
  The company can use treasury shares for M&A or employee incentives, preserving cash.

Conclusion

Bumi Armada’s proposals mark a potential turning point for the company, addressing legacy losses and positioning it for more active capital management. The planned capital reduction and share buy-back mandate could enhance shareholder value, improve market sentiment, and increase financial flexibility. Shareholders should closely monitor the EGM, as approval and implementation of the proposals could be catalysts for share price movement.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors are advised to make their own independent assessment and seek professional advice before making any investment decisions. The information herein is based on company disclosures as of the date stated and may be subject to change or further updates.

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