KUALA LUMPUR: Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) plans to raise up to RM1 billion from a sukuk programme, which has been assigned a preliminary AA- rating by Malaysian Rating Corp Bhd (MARC).

The proceeds from the sukuk will be used mainly to upgrade MHB’s yard facilities under its yard optimisation programme, which it embarked in 2006, and to increase liquidity in the light of the group’s erratic cash flow generation.

MHB is allocating a capital expenditure (capex) of RM338 million and RM151 million for 2014 and 2015, respectively.

In a statement yesterday, MARC said the rating incorporates MHB’s strong capital position as reflected by its low leverage position and significant financial flexibility attributed to its good access to the capital market and strong shareholders.

However, the rating agency noted MHB’s downside in the group’s lumpy order book that resulted in its uneven financial performance.

MARC’s concern is MHB’s ability to replenish its order book, which at this time provides earnings visibility until the end of 2015. Currently, 85% of MHB’s order book is attributed to Malikai TLP and SK316 projects for Sabah Shell Petroleum Co Ltd and Petronas Carigali Sdn Bhd respectively.

It also pointed out that MHB’s order book is highly reliant on Petronas group.

MARC said the replenishment of order book will continue to be dependent on Petronas’ planned capex.

Nevertheless, MARC still holds a “stable” outlook on MHB’s future prospect, as it expects the group will be able to maintain its business and financial risk profile, which are associated with the upstream oil and gas services sector.

This article first appeared in The Edge Financial Daily, on October 15, 2014.