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MISC-Bumi Armada FPSO business merger could create huge Petronas subsidary

Malaysian shipping company MISC and oil and gas services provider Bumi Armada, both relatively big players in their respective fields, are reportedly in early stages of exploring a corporate exercise involving the consolidation of the floating production storage offshore (FPSO) businesses of both companies, local reports cited sources as saying.

According to them, the exercise could see MISC inject its FPSO businesses into Bumi Armada in return for shares, a move that could see Petronas' shipping unit ending up with a big stake in Bumi Armada.

MISC owns six FPSOs, several other assets such as Floating Storage and Offloading (FSO) vessels and a fleet of 118 LNG, chemical and petroleum tankers, while Bumi Armada is already the world’s fifth largest FPSO operator, with nine FPSO vessels.

If the deal goes through and MISC takes a substantial stake in Bumi Armada, the Ananda Krishman-controlled company would by default become the FPSO arm of Petronas and put it in a good position to start winning more Petronas contracts, which it has missed out on so far.

Bumi Armada has had to strike out on its own to find work for its FPSO projects and almost all its contracts are from international clients at overseas fields. While it has a large orderbook of some MYR25bn ($5.7bn) with potential extensions of some MYR13.3bn, Bumi Armada has been making losses over the last few quarters mainly due to impairment issues.

The current tough times in oil and gas industry increase the chances for mergers and acquisition activity as companies look to consolidate to improve their chances for survival.

MISC is also much larger at its market capitalisation of MYR41.38bn compared to Bumi Armada’s MYR5.83bn.

The bulk of Bumi Armada’s contracts are from the overseas markets and it hardly gets any from Petronas currently.

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