KUALA LUMPUR: RAM Rating Services Bhd has placed Syarikat Borcos Shipping Sdn Bhd's RM160 million Islamic debt notes on Rating Watch, with a negative outlook. Borcos provides marine support services to the offshore oil and gas (O&G) industry.
The ratings agency said on Wednesday, Sept 29 the ratings involved the A1/P1 ratings of the group's RM160 million Sukuk Ijarah medium-term notes (2008/2014).
RAM Ratings said the stable outlook on the AAA(bg) ratings of Borcos' RM55 million bank-guaranteed Sukuk Ijarah MTN (2010/2015), RM125 million bank-guaranteed Sukuk Ijarah MTN'' (2010/2017) and RM30 million bank-guaranteed Bai' Bitahaman Ajil Islamic debt security (2010/2017) has been maintained.
Borcos provides marine support services to the offshore oil and gas (O&G) industry and the integrated land-logistics services.
'The Rating Watch reflects the recent decline in daily charter rates (DCRs) and low utilisation of Borcos' offshore support vessels (OSVs) that are operating on spot-charter basis; these factors had hampered its financial performance in 1H FY Dec 2010,' it said.
RAM Ratings said despite being protected by the cabotage policy, Malaysian-flagged OSVs are not shielded from the pressure of lower DCRs given the substantial upcoming supply of new local vessels and increased availability of foreign-flagged ones (particularly from Singapore); vessels ordered before the onset of the global slump are now coming on-stream.
Domestic DCRs have shrunk some 10%'20% since early this year. This has been exacerbated by the slower-than-expected award of new contracts by Petroliam Nasional Bhd in 1H 2010.
Meanwhile, the delivery of Borcos' four new vessels had been delayed by a few months; while these vessels are operating on short-term charter contracts ranging from 30 days to seven months, the group has yet to secure medium-term charter contracts for these vessels.
'Borcos' financial performance in 1H FY Dec 2010 came in below our expectations, with respective 8.6% and 21.7% (annualised) declines in revenue and operating profit before depreciation, interest and tax to RM83.42 million and RM28.43 million,' it said.
RAM Ratings said Borcos' gearing ratio climbed up from 2.24 times as at end-December 2009 to 2.88 times as at end-June 2010, driven by a heavier debt load for fleet expansion. Given this and its weaker earnings for 1H FY Dec 2010, its annualised funds from operations debt cover almost halved from 0.20 times to 0.11 times.
'Unless there is a significant pick-up in DCRs and the utilisation of its vessels in the near term, Borcos' full-year numbers are expected to remain below our expectations,' said Kevin Lim, RAM Ratings' head of consumer and industrial ratings.
RAM Ratings expects to resolve the Rating Watch upon the finalisation of its annual rating review on Borcos within the next two months.
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Meanwhile, the enhanced AAA(bg) ratings for the group's bank-guaranteed issues are not affected by the Rating Watch as they reflect the unconditional and irrevocable Kafalah guarantee extended by Bank Pembangunan Malaysia Bhd (BPMB) on their nominal values. BPMB carries AAA/stable/P1 ratings from RAM Ratings.
The ratings agency said on Wednesday, Sept 29 the ratings involved the A1/P1 ratings of the group's RM160 million Sukuk Ijarah medium-term notes (2008/2014).
RAM Ratings said the stable outlook on the AAA(bg) ratings of Borcos' RM55 million bank-guaranteed Sukuk Ijarah MTN (2010/2015), RM125 million bank-guaranteed Sukuk Ijarah MTN'' (2010/2017) and RM30 million bank-guaranteed Bai' Bitahaman Ajil Islamic debt security (2010/2017) has been maintained.
Borcos provides marine support services to the offshore oil and gas (O&G) industry and the integrated land-logistics services.
'The Rating Watch reflects the recent decline in daily charter rates (DCRs) and low utilisation of Borcos' offshore support vessels (OSVs) that are operating on spot-charter basis; these factors had hampered its financial performance in 1H FY Dec 2010,' it said.
RAM Ratings said despite being protected by the cabotage policy, Malaysian-flagged OSVs are not shielded from the pressure of lower DCRs given the substantial upcoming supply of new local vessels and increased availability of foreign-flagged ones (particularly from Singapore); vessels ordered before the onset of the global slump are now coming on-stream.
Domestic DCRs have shrunk some 10%'20% since early this year. This has been exacerbated by the slower-than-expected award of new contracts by Petroliam Nasional Bhd in 1H 2010.
Meanwhile, the delivery of Borcos' four new vessels had been delayed by a few months; while these vessels are operating on short-term charter contracts ranging from 30 days to seven months, the group has yet to secure medium-term charter contracts for these vessels.
'Borcos' financial performance in 1H FY Dec 2010 came in below our expectations, with respective 8.6% and 21.7% (annualised) declines in revenue and operating profit before depreciation, interest and tax to RM83.42 million and RM28.43 million,' it said.
RAM Ratings said Borcos' gearing ratio climbed up from 2.24 times as at end-December 2009 to 2.88 times as at end-June 2010, driven by a heavier debt load for fleet expansion. Given this and its weaker earnings for 1H FY Dec 2010, its annualised funds from operations debt cover almost halved from 0.20 times to 0.11 times.
'Unless there is a significant pick-up in DCRs and the utilisation of its vessels in the near term, Borcos' full-year numbers are expected to remain below our expectations,' said Kevin Lim, RAM Ratings' head of consumer and industrial ratings.
RAM Ratings expects to resolve the Rating Watch upon the finalisation of its annual rating review on Borcos within the next two months.
''
Meanwhile, the enhanced AAA(bg) ratings for the group's bank-guaranteed issues are not affected by the Rating Watch as they reflect the unconditional and irrevocable Kafalah guarantee extended by Bank Pembangunan Malaysia Bhd (BPMB) on their nominal values. BPMB carries AAA/stable/P1 ratings from RAM Ratings.
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