Tuesday, October 4, 2011

MARC lowers ratings of Scomi Group, KMCOB Capital

KUALA LUMPUR: Malaysian Rating Corporation Bhd (MARC) has downgraded the issue rating of SCOMI GROUP BHD []'s RM500 million medium term notes (MTN) programme to A+ from AA-.

The ratings agency said on Tuesday, Oct 4 it had also downgraded the issue rating of KMCOB Capital Bhd's RM630 million Murabahah medium term notes to A+ID(cg) from AA-ID(cg).

'The outlook on both ratings is negative. The downgrades affect RM200 million of outstanding MTNs issued by Scomi and RM480 million of outstanding Murabahah notes issued by KMCOB,' it said.

Scomi is the ultimate parent of KMCOB which is held through 76%-owned operating subsidiary Scomi Oilfield Limited (SOL). KMCOB's obligations under the rated notes are guaranteed by SOL.

'The one-notch downgrades balance low operating cash flow at Scomi and SOL relative to maturing debt obligations and tight liquidity at both entities against the recent improvement in the group's core business operations,' it said.

KMCOB's noteholders recently agreed to a further deferment of outstanding payments into its finance service reserve account (FSRA) to Dec 14, 2011.

The ratings agency said Scomi intended to unlock liquidity through asset disposals and/or corporate exercise(s) to reduce its debt leverage.

'MARC opines that there is a possibility that Scomi may also seek a waiver or deferment of its forthcoming sinking fund requirements in view of the short remaining time frame to build up the sinking fund by March 2012 to redeem the RM200 million outstanding notes due in September 2012,' it said.

MARC said the current liquidity metrics of SOL (in the case of KMCOB) and Scomi revealed a degree of vulnerability to execution risk and less favourable than expected operating performance that are better indicated by the revised ratings and negative outlook.

Although MARC believed there was a possibility that the group could improve its operating cash flows in the second half of 2011 on the back of improved market conditions, the rating agency believed noteholders of KMCOB and Scomi face increased risk of a non-coercive debt rescheduling in coming months.

For the six months ended June 30, 2011 (1HFY2011), oilfield services provider SOL turned around with a pre-tax profit of US$12.5 million after two consecutive years of losses.

Its order book also shows healthy replenishment with the uptick in drilling activity, particularly in Malaysia.

At group level, Scomi posted an unaudited pre-tax profit of RM47.7 million for 1HFY2011 compared to a full year pre-tax loss of RM186.6 million for FY2010.

MARC cautioned it would likely lower the ratings further if SOL and Scomi were unable to secure more'' liquidity resources through asset disposals or other external sources and/or internally generated cash flow comfortably ahead of payment dates for forthcoming rated debt obligations.

The downgrades would not necessarily be limited to one notch, particularly for Scomi, whose debt obligations are structurally subordinated to that of its operating subsidiaries, including SOL's. The rating agency would likely view any further solicitations of covenant and sinking fund build-up payment waivers by KMCOB and/or Scomi negatively.

Conversely, the outlook could be changed to stable if SOL and Scomi were able to secure additional liquidity resources to pay down debt in accordance with existing debt maturity schedules.

No comments:

Post a Comment