KUALA LUMPUR: RAM Rating Services Bhd said the AA3 ratings of TANJUNG OFFSHORE BHD []'s RM350 million debt notes are unaffected by the recent notice of claim served by Newfield Peninsular Malaysia Inc (Newfield) for damages to pipelines allegedly caused by one of the group's vessels.
The ratings agency said on Thursday, Oct 14 the debt notes are the RM150 million serial bonds with warrants (2006/2014) and RM200 million Islamic medium-term notes programme (2008/2023).
Tanjung provides marine support, engineering equipment, maintenance, drilling-rig and platform services to the oil and gas sector.
On Oct 6, Newfield served a notice of claim on one of Tanjung's subsidiaries ' Tanjung Kapal Services Sdn Bhd - for the cost of repair and cleaning for pipelines allegedly damaged by the Group's vessel ' Tanjung Puteri 1 - at East Belumut Field, off the east coast of Peninsular Malaysia. The claim amounts to USD15.90 million (approximately RM50 million). The Group's insurer has since commenced a review and is carrying out further investigations.
'Should the outcome of the investigation favour Newfield, the management represented that the potential financial impact on Tanjung would be largely mitigated by the Group's protection and indemnity insurance policy on its vessels. Going forward, however, Tanjung's insurance premium for Tanjung Puteri 1 is likely to increase slightly. Operationally, the Group may also be subjected to more stringent inspection and screening among its charterers after this incident,' said Kevin Lim, RAM Ratings' Head of Consumer & Industrial Ratings.
The outlook on Tanjung's long-term rating was revised from stable to negative in November 2009. That was based on its concerns over its deteriorating business and financial profiles; the group's loss-making waste-heat-recovery-unit (WHRU) operations and the possibility of further debt-funded expansion could keep suppressing its debt-protection measures.
Tanjung's performance remained weaker than expected in 1H FY Dec 2010; even though losses from its WHRU operations had narrowed, the Group only achieved RM8.22 million of pre-tax profit for that period (1H FY Dec 2009: RM15.65 million) due to slower order-book replenishment for its engineering equipment and maintenance services division, coupled with the dry-docking of 2 vessels and low utilisation of its well-testing vessel after the expiry of its time-charter contract.
'Looking ahead, the group also faces heightened renewal risk for its time-charter contracts amid stiffer competition among domestic offshore support vessels and weaker daily charter rates, which have declined some 10%'20% since early 2010.
'This Newfield incident in itself does not affect Tanjung's ratings but it could somewhat affect the Group's reputation and hurt its competitive positioning in the marine support services sector,' said the ratings agency.
RAM Ratings said the group's lacklustre financial performance may also exert downward pressure on the assigned ratings. RAM Ratings is currently conducting its annual rating review on Tanjung and will incorporate this into our assessment. We will make the necessary announcement upon the finalisation of the review exercise within the next two months.
The ratings agency said on Thursday, Oct 14 the debt notes are the RM150 million serial bonds with warrants (2006/2014) and RM200 million Islamic medium-term notes programme (2008/2023).
Tanjung provides marine support, engineering equipment, maintenance, drilling-rig and platform services to the oil and gas sector.
On Oct 6, Newfield served a notice of claim on one of Tanjung's subsidiaries ' Tanjung Kapal Services Sdn Bhd - for the cost of repair and cleaning for pipelines allegedly damaged by the Group's vessel ' Tanjung Puteri 1 - at East Belumut Field, off the east coast of Peninsular Malaysia. The claim amounts to USD15.90 million (approximately RM50 million). The Group's insurer has since commenced a review and is carrying out further investigations.
'Should the outcome of the investigation favour Newfield, the management represented that the potential financial impact on Tanjung would be largely mitigated by the Group's protection and indemnity insurance policy on its vessels. Going forward, however, Tanjung's insurance premium for Tanjung Puteri 1 is likely to increase slightly. Operationally, the Group may also be subjected to more stringent inspection and screening among its charterers after this incident,' said Kevin Lim, RAM Ratings' Head of Consumer & Industrial Ratings.
The outlook on Tanjung's long-term rating was revised from stable to negative in November 2009. That was based on its concerns over its deteriorating business and financial profiles; the group's loss-making waste-heat-recovery-unit (WHRU) operations and the possibility of further debt-funded expansion could keep suppressing its debt-protection measures.
Tanjung's performance remained weaker than expected in 1H FY Dec 2010; even though losses from its WHRU operations had narrowed, the Group only achieved RM8.22 million of pre-tax profit for that period (1H FY Dec 2009: RM15.65 million) due to slower order-book replenishment for its engineering equipment and maintenance services division, coupled with the dry-docking of 2 vessels and low utilisation of its well-testing vessel after the expiry of its time-charter contract.
'Looking ahead, the group also faces heightened renewal risk for its time-charter contracts amid stiffer competition among domestic offshore support vessels and weaker daily charter rates, which have declined some 10%'20% since early 2010.
'This Newfield incident in itself does not affect Tanjung's ratings but it could somewhat affect the Group's reputation and hurt its competitive positioning in the marine support services sector,' said the ratings agency.
RAM Ratings said the group's lacklustre financial performance may also exert downward pressure on the assigned ratings. RAM Ratings is currently conducting its annual rating review on Tanjung and will incorporate this into our assessment. We will make the necessary announcement upon the finalisation of the review exercise within the next two months.
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