July 2020 CONFIDENTIAL

ZUL IRFAN HAZIM BIN SURURI - 62211219262

Answer ALL four (4) questions.

1. Debate on the notion that bank’s term loan is better than bond financing. Discuss.
Answer
The bank’s term loan is better than the bond financing because there are short and
long term offered in bank’s term loan. Loans are generally used to paying for assets, start-up
capital and for working capital expenses. However, it is only long-term transaction that is
allowed in the bond financing. By using the bank’s term loan, the company can meet the
needs of business whether in short or long-term transactions. Other than that, bond
financing is offered the high interest rate compare with bank term loan that offered lower
interest rate.
Then, the bank’s term loan is more secured compare with the bond financing. In
general, bond is one of the high-risk investments. Generally, bank loan is the cheapest
interest rate compare with bond financing. The bond financing normally offered the high
interest rate. Other advantages of using the bank’s term loan is flexibility. When the
borrower receives the loan, the bank will not set the specific rules regarding how you must
spend the money. The company are free to do anything by using the loan whether they want
to buy new equipment or others transaction for the businesses. Then, the other advantage
of bank term loan is retained profit. The customer only needs to pay the principal and the
interest of the loan. The businesses will retain all the business profit.

2. (a) Using Book Value Per Share, Net Tangible Asset Book Value, Dividend Growth Model and
Buffett’s Valuation Model, compute the intrinsic value of the following company.
I. Bumi Armada Berhad. (20 marks)

(b) Identify as to whether the company is undervalued or overvalued at Bursa Malaysia.

Provide a comparison with the prevailing market price. (5 marks)

3. Table below provides the time-series data on Sales and Fixed Assets of EZ Resources Berhad
over the past 12 years till 2019. You are required to:
(a) Explain the objective of carrying out business forecasting. (5 marks)
(b) Elaborate four (4) limitations in conducting business forecasting. (10 marks)
(c) Calculate the sales figure in 2020 using simple linear regression model, whereby Sales is
a function of Fixed Assets. (15 marks)

Table: Financial Information of EZ Resources

Year Sales (RM million) Fixed Assets (RM million)

2008 156 1029
2009 167 1045
2010 178 1069
2011 192 1071
2012 198 1074
2013 202 1079
2014 210 1080
2015 209 1080
2016 201 1080
2017 228 1135
2018 231 1145

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July 2020 CONFIDENTIAL

2019 244 1149

2020 1233

4. Bumi Armada Berhad has been adversely affected by the global economic crisis triggered by
China-U.S trade war plus the recent covid-19 pandemic.
(a) Evaluate the effectiveness of the current risk management policy undertaken by Bumi
Armada Berhad.
(10 marks)
(b) Devise a comprehensive turnaround strategy for:
 Bumi Armada Berhad. (25 marks)

Answer
a) According to the annual report for Bumi Armada in 2018, there are several risk
contexts involve in Bumi Armada. Firstly, the liquidity position of the Bumi Armada is key
to continued successful business flow. BAB need to deal with the high levels of corporate
debt falling due and the risk of potential default. High levels of corporate debt falling
due which put the liquidity position of the BAB at risk should these repayment
obligations and other operating obligations not be met. Bumi Armada Berhad had been
measured and mitigate the risk wisely. Bumi Armada has made the refinancing of the
Term Loan and Revolving Credit corporate debts in order to better align the corporate
debt profile. The company also monitoring cash flows to ensure that all obligations can
be met by them.
Next, the other context risk is maintaining the expected level of performance for
Armada Kraken is crucial in order to secure revenue earning capability. Armada Kraken
has faced several technical issues that have affected the performance during the year
thus affecting her ability to generate revenue at the expected levels which in turn would
lead to an inability to meet debt service and contractual obligations. The way how Bumi
Armada Berhad mitigate the risk is the management keep focusing on resolving
technical issues and working towards increasing the availability levels of the vessel to
the required level. Other than that, the next risk context face by Bumi Armada is about
safety, security, integrity and reliability in the delivery of projects to the customers. In
2018, the Group faced three LTI cases. Bumi Armada Berhad has investigated and
reviewed the LTI cases. They have a Corporate HSSEQ plan in place, aimed at minimising
HSE incidents, and complies with the applicable HSE standards.
The other risk context is the high level of operational performance and excellence is
critical to BAB success. According to the annual report, the BAB mitigate it through the
FPO Business Unit continues to work via the shore base office and the offshore crew in
ensuring that the vessels are performing and that all technical issues that arise are
investigated and solutions developed for resolution. The last risk context is
recoverability of amounts in relation to termination of Armada Claire contract. The
termination of Armada Claire was resulted in material litigation. The mitigation step take
by Bumi Armada Berhad is the management in consultation with external counsel have
considered the facts of the case at present and optimistic of a favourable outcome from
the litigation.

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July 2020 CONFIDENTIAL

b) The World Health Organisation (WHO) China country office was informed of cases of
an unknown pneumonia detected in Wuhan City, China. Then they identified that the
cases are caused by COVID-19. As the disease spread across the global community, on
31st January 2020, WHO declared COVID-19 as a Public Health Emergency of
International Concern (PHEIC). Bumi Armada had been prepared several turnaround
strategies to face the pandemic of Covid-19. Firstly, Bumi Armada Berhad had
implemented the travel restrictions to affected countries based on recommendations
from WHO and local authorities. Second, Bumi Armada had implemented the WHO
standard recommendations to protect against COVID-19 across the fleet. Then, Bumi
Armada Berhad enforcing temperature checks during crew change in the offshore
operations and visitors to Bumi Armada Berhad office premise. Next, the uses of hand
sanitisers at work sites whether onshore or offshore are compulsory. Bumi Armada
Berhad had implemented the awareness campaign on Personal and Office Hygiene.
Other than that, implementation of COVID-19 Awareness Training to the employees and
Medical Emergency Guidelines to all our operations.
The Board of Director for Bumi Armada Berhad had implemented the governance
responsibilities in respect of financial related risks and internal controls to the Audit
Committee and non-financial related risks to the Risk Management Committee. The
Audit Committee reviews the outcome of internal and external audits overseeing the
financial reporting and internal control environments while the Risk Management
Committee provides oversight and sets the tone towards managing key risks of the Bumi
Armada Berhad. The next turnaround strategy that had been made by Bumi Armada is
strengthening the Corporate Compliance Framework. The Board also recognises that
there is a need to continuously strengthen the Corporate Compliance Framework to
comply with the relevant legislations internationally. In 2020, Bumi Armada Berhad had
embarked on an exercise to enhance its Corporate Compliance Framework and Policies
to ensure compliance with Section 17A of the Malaysian AntiCorruption Commission
(Amendment) Act 2018.
The next turnaround strategy implemented by Bumi Armada Berhad is regarding the
access to capital, capital allocation and management of financial risks that related with
business performance. Bumi Armada Berhad closely monitors their debt and repayment
obligations. Cash flows are regularly reviewed by the management and the Board of
Director to ensure debt can be serviced and future funding requirements can be met.
They also closely monitor the compliance with existing debt covenants. The next
turnaround strategy is Bumi Armada Berhad managing contracts effectively and
efficiently. Bumi Armada Berhad had managed the various type of contracts in its
business. They have a dedicated contract management team at the BU level as well as
strong support from Corporate Departments such as Legal.
Lastly, Bumi Armada Berhad relies on a variety of information technology systems to
overcome the potential risk. Bumi Armada has a cyber security programme to mitigate
any potential data breach vulnerabilities internally or externally. As part of the
governance and reporting process, the Head of IT presents to the board the IT strategy,
plan, risks and mitigation plans. The Information technology systems have been audited
by internal audit and findings will be presented to the Board.

EBB 30703 Corporate Finance