Wednesday, May 25, 2011

BLT successfully spins off its domestic cabotage/ FPSO business

Berlian Laju's domestic cabotage spinoff Buana was up 11% on debut and over subscribed 16,77 times. This marks the third step in the group restructuring initiative this year. Previously, the company did a massive US$ 685 mio debt restructuring with senior lenders as well as a US$ 90 mio sale and lease back deal for four chemical tankers with Standard Chartered bank. These initiatives buy time for this over financially overstretched group until underlying market conditions improve.

The new credit facility will be used to refinance ten loan facilities of US$ 593 mio and fund capex on 3 of 4 newbuildings for delivery in 2011. The refinancing will reduce total instalments over the next three years with US$ 167 mio in total. BLT will mortgage forty of its existing vessels as well as the 3 new deliveries for security.

We believe that separately listing the Buana entity will enhance the imbedded value of their cabotage business better than currently reflected in the BLT share price. In any case, this much touted Indonesian cabotage business accounts for only a relatively small part of their total turnover.

Buana just recently turned to positive operating profits after making losses the previous year.  It is a relatively small operation with three tankers and one FPSO unit, but BLT wants to scale up the operation.

Meanwhile, BLT has consolidated the commercial management of their fleet in the Chembulk operation that they purchased several years ago from American Marine Managers. Chembulk CEO Jack Noonan has been making an upbeat case about the chemical tanker market, arguing that ‘bleeding has stopped’.

BLT has high financial and operating level that makes it a speculative play should the chemical markets turn up. The order book overhang for chemical tankers is presently the smallest in the tanker sector, albeit Stolt Tankers - a market leader and outperformer in the sector - has been taking a cautious view, not expecting any major relief on rates until the second semester 2012.

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