RAM assigns AAA to Perdana Petroleum's RM650m Sukuk

  • Business
  • Monday, 18 Apr 2016

Perdana Petroleum's work and accommodation barge

KUALA LUMPUR: RAM Rating Services has assigned a final rating of AAA(fg)/Stable to Perdana Petroleum Bhd’s RM635mil debt notes.

It said on Monday the rating on the five-year tranche of the RM650mil Sukuk Murabahah Programme (2016/2028) was  based on Danajamin Nasional Bhd's irrevocable and unconditional financial guarantee.

The guarantee by Danajamin (rated AAA/Stable/P1) enhances the credit profile of the five-year tranche beyond the group’s stand-alone credit strength.

“Subsequent issuances under the 12-year Sukuk programme are conditional upon guarantees provided by guarantors. 

“As such, the guarantor may vary for different tranches of this debt facility throughout its tenure,” it said. 

RAM Ratings said it would only assign ratings to the Sukuk upon the official appointment of a guarantor or guarantors for a particular issuance under the debt facility. 

In the case of a bank guarantee from a consortium of financial institutions, the weakest-link approach will apply to the assigned rating. 

Independent of the guarantee, Perdana Petroleum’s stand-alone credit strength reflected its synergies with its parent, DAYANG ENTERPRISE HOLDINGS BHD, coupled with time-charter contracts providing steady contributions. 

“Dayang’s acquisition of the group is a strategic long-term move for the former in view of its intention to own a larger fleet to execute various hook-up and commissioning (HUC) and maintenance jobs, given its order book of RM3.98 billion running up to mid-2018,” said RAM’s head of consumer and industrial ratings Kevin Lim. 

He also noted that Dayang has pledged to take up four more vessels on a call-out basis from next year (four vessels on time charters currently), essentially chartering half of Perdana Petroleum’s vessel fleet and contributing about 40% of its top line moving forward. 

Time-charter contracts, spanning about two to five years, accounted for about 60% of the group’s revenue in FY December 2015.

Perdana Petroleum’s other strengths include its large presence in the domestic accommodation work barges (AWB) segment and the 10,000 brake horsepower sub-segment of the anchor handling tug supply (AHTS) market. 

Additionally, domestic providers of marine support services such as the group are protected from foreign competition by Malaysia’s cabotage law. 

“That said, given the current lacklustre environment of the oil and gas (O&G) sector amid Petronas Nasional Bhd’s initiative to review its business model and cut costs, we do not discount possible delays in the implementation of awarded contracts. 

“Furthermore, a continued slowdown in work orders, which will potentially negatively affect the awarding of new contracts, is also expected.

“The abovementioned strengths are moderated by Perdana Petroleum’s geared balance sheet and modest cashflow protection metrics. Historically, the group’s adjusted gearing ratio has hovered about 1.10-1.40 times,” it said. 

Taking into account the potential purchase of a 500 pax AWB, the group’s gearing ratio is expected to average about 1.40 times over the next three years. 

Meanwhile, idling vessels on the back of a lower utilisation rate of 63% (utilisation rate in FY Dec 2014: 92%) had weighed on the group, causing it to incur pre-tax losses for FY Dec 2015. 

Perdana Petroleum’s annualised adjusted funds from operations (FFO) debt cover consequently fell to 0.11 times, from an average of 0.20-0.30 times over the past 3 years. 

“Over the next three years, Perdana Petroleum’s FFO debt cover is expected to trend around 0.10 times,” adds Lim.

Other moderating factors include pressured rates due to an oversupply of offshore support vessels (OSV), exposure of earnings to volatile daily charter rates (DCR), and operational integration risk. 

RAM Ratings said the oversupply of OSVs had resulted from orders for a large number of vessels, mainly AHTS, having been placed before the onset of the global financial crisis of 2008/2009. This coupled with low oil prices has caused DCR to fall around 25%-30% over the past year. 

“The group’s earnings have accordingly been affected, as seen in the deterioration of its FY Dec 2015 results. In addition, as with any merger or acquisition, we opine that Perdana Petroleum could face some integration risk,” it said.

Perdana Petroleum is an OSV provider for the O&G industry, owning a fleet of 17 vessels that includes 8 AHTS vessels, 7 AWB and 2 work boats. 

Dayang, a leader in HUC and maintenance, became the Group’s largest shareholder, with a 98.0% stake, after triggering a mandatory general offer in May 2015. 

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