Tuesday, April 04, 2017

Yinson: A Not-so-Painful Termination? (UPDATED)

This morning we have the news that Yinson Holdings Bhd’s associate firm PTSC Asia Pacific Pte Ltd (PTSC Asia Pacific) has received a notice of termination of a bareboat charter contract for a floating production storage and offloading system (known as FPSO PTSC Lam Son) valued up to US$737mil (RM3.3bil) awarded by Lam Son Joint Operating Company (LSJOC), which is a joint venture between Petroliam Nasional Bhd (Petronas) and PetroVietnam.

LSJOC is the operator of the Lam Son field offshore Vietnam while the PTSC Lam Son has been operating in Lam Son Field since June 2014. PTSC Asia Pacific is a 49:51 joint venture between Yinson and PetroVietnam Technical Services Corp (PTSC).

Yinson advised the following:
  • The contract cancellation is scheduled to occur on June 30, 2017
  • Despite the termination, PetroVietnam - the ultimate holding company of one of the shareholders of LSJOC – intends to continue the petroleum operations at Lam Son Field despite the liquidation of LSJOC and to continue to utilise FPSO PTSC Lam Son for this purpose (How??)
  • PTSC Asia Pacific is entitled to an early termination payment (ETP) from PTSC
Because of the above, Yinson stated that “there is no material adverse financial impact to PTSC Asia Pacific”. For more, go to The Star report & Yinson’s announcement on Bursa Malaysia (here). I share this sentiment based on two grounds: 
  • PetroVietnam owns 51% of PTSC Asia Pacific as well as 50% of LSJOC. This means that PetroVietnam has a pecuniary interest to find a solution for a redundant FPSO
  • The charter contract is a bareboat charter, which means that the cost of reinstating the FPSO in its original condition will be borne by LSJOC
I still believe that we will see a few days of weakness in Yinson. The share price may drop to RM3.00-3.15. That could be a good entry to one of the more focused & well-managed O&G companies in Malaysia.

Chart: Yinson's daily chart as at Apr 3, 2017 (Source:


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