KUALA LUMPUR (Aug 3): Malaysian Rating Corporation Bhd (MARC) has assigned preliminary ratings of MARC-1IS/AA-IS with a stable outlook to Serba Dinamik Holdings Bhd’s proposed RM500 million multi-currency Islamic Commercial Papers Programme and RM1.5 billion Islamic Medium-Term Notes Programme, with a combined limit of RM1.5 billion.

Serba Dinamik is expected to make a first issuance of up to RM500 million under these ventures, collectively known as Sukuk Wakalah programmes, with the proceeds used to refinance the company’s existing borrowings and for working capital requirements.

“The assigned ratings incorporate Serba Dinamik’s established position in the operations and maintenance (O&M) of rotating and static equipment primarily for the oil and gas industry,” MARC said in a statement today.

“The group has a significant market share domestically in this segment and has steadily increased its presence abroad, particularly in the Middle-East. The foreign operations provide geographically diverse revenue streams,” the statement added.

MARC said the ratings also considered Serba Dinamik’s large order book, its stable operating margins and its ability to secure recurrent contracts to provide medium-term earnings visibility.

“Constraining the ratings are continued pressure on its free cash flow generation, mainly due to rapid business expansion and concerns on the potential increase in working capital funding that could increase its borrowings and impact its leverage position,” the rating agency said. 

The stable outlook assumes tSerba Dinamik will maintain its credit metrics in line with its current rating band, it added.

As at end-March, Serba Dinamik’s outstanding O&M order book stood at about RM4.2 billion, of which RM1.2 billion (or 28.6%) is domestic and the bulk of the remaining in the Middle East.

The longstanding relationships with oil and gas operators have enabled the group to maintain a high client retention rate, which mitigates renewal risk of its O&M contracts which are typically for a three-year period.

“MARC also notes that Serba Dinamik has been largely insulated from fluctuations in oil prices, due to the oil and gas companies’ need to comply with regulatory and contractual requirements to conduct scheduled and routine maintenance,” the ratings agency said.

With the Sukuk Wakalah programmes, the group’s consolidated debt-equity ratio would increase to about 0.63 times post-initial issuance.