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27 Jun | Thursday
RAM Ratings reaffirms rating of Perdana Petroleum’s sukuk

RAM Ratings has reaffirmed the AAA(fg)/Stable rating of the RM635 mil 5-year tranche of Perdana Petroleum Berhad’s (the Group) RM650 million Sukuk Murabahah Programme (2016/2028). The reaffirmation reflects the irrevocable and unconditional financial guarantee extended by Danajamin Nasional Berhad (rated AAA/Stable/P1), which enhances the credit profile of the five-year tranche beyond the Group’s stand-alone credit strength.

Perdana Petroleum registered a notably better operating performance in FY Dec 2018, supported by stronger demand for its vessels due to the easing oversupply of offshore support vessels (OSVs). This had also resulted in a 10%-20% upward revision for the Group’s daily charter rates (DCRs). Coupled with a higher vessel utilisation rate of 64% (2017: 52%), the Group’s revenue climbed up 28.3% to RM189.65 mil (FY Dec 2017: RM147.79 mil). At the same time, Perdana Petroleum’s pre-tax loss narrowed 79.3% to RM38.92 mil (FY Dec 2017: RM187.59 mil), partially due to a RM11.47 mil forex gain and a RM6.71 mil reversal on impairment (FY Dec 2017: RM52.04 mil forex loss and RM61.83 mil impairment loss).

The Group’s healthier operating performance and lighter debt load of RM839.97 mil as at end-December 2018 (end-December 2017: RM880.76 mil) extended its funds from operations (FFO) debt cover from 0.08 to 0.11 times y-o-y. On the other hand, its gearing ratio deteriorated to 1.82 times (end-December 2017: 1.72 times) as persistent losses had eroded its equity base.

Notably, Perdana Petroleum’s substantial short-term debts are due to their reclassification from non-current to current liabilities, following the technical breach of certain financial covenants. While these short-term borrowings are not expected to become immediately due and payable, the Group’s liquidity profile is still deemed very tight. Perdana Petroleum has had to rely on cash advances from its parent, Dayang Enterprise Holdings Berhad, to fund its lumpy principal repayments.

Perdana Petroleum is currently restructuring its Sukuk and debts with financial institutions with the help of the Corporate Debt Restructuring Committee. Under the debt restructuring scheme, the management has proposed to make an early redemption of the outstanding RM365 mil of its Sukuk by end-October 2019 and extend the tenures of its other term loans. We note that Perdana Petroleum is still servicing its debt obligations under the Sukuk and bank borrowings. The redemption of the Sukuk will be funded by the issuance of zero-coupon redeemable convertible preference shares with a tenure of 10 years, which Dayang has agreed to subscribe for up to RM455 million. If successful, the debt restructuring exercise should ease the Group’s liquidity woes and increase its financial flexibility.

Independent of the guarantee from Danajamin, Perdana Petroleum’s credit profile reflects operational synergies with and support from Dayang. We anticipate support from its parent to be forthcoming if required. Notably, more than half of the Group’s vessels are a good fit for Dayang’s hook-up and commissioning as well as maintenance activities. Perdana Petroleum also enjoys a significant presence in domestic accommodation work barges and mid-sized anchor-handling tug supply vessels. Moreover, domestic providers of marine support services are protected to some extent from foreign competition by Malaysia’s cabotage law.

The factors above are moderated by the challenging operating environment for the OSV sector, along with the Group’s still-weak financial profile and exposure to contract renewal and customer concentration risks. Competition in the domestic OSV industry remains keen as it is fragmented, with numerous small players. In addition, Perdana Petroleum’s financial profile is weakened by its highly geared balance sheet, poor cashflow-protection metrics and tight liquidity.

Analytical contact
Aw Wei Xuan
(603) 3385 2506
weixuan@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 Date of release: 27 June 2019

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad

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