Thursday 28 Mar 2024
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KUALA LUMPUR (Oct 14): Malaysian Rating Corporation Bhd (MARC) has assigned a preliminary rating of AA-IS on Malaysia Marine and Heavy Engineering Holdings Bhd (MHB)’s RM1 billion Sukuk Murabahah programme, with a stable outlook.

According to MARC’s press release today, the rating not only reflects MHB’s competitive position as the largest domestic offshore oil and gas (O&G) fabricator and marine repair service provider, but also incorporates the latter’s strong capital position.

“The rating also incorporates MHB’s strong capital position as reflected by its low leverage position and significant financial flexibility attributed to its good access to capital market and strong shareholders,” MARC said.

However, it noted the rating has been moderated by MHB’s lumpy order book that often resulted in uneven financial performance, its significant project execution risk associated with the complexity of offshore engineering and construction projects, and intense competition from domestic and international players.

Its order book stood at RM1.8 billion as at end-June 2014, having declined from RM2.6 billion as at end-December 2013.

MARC’s concern is MHB’s ability to replenish its present order book which provides earnings visibility only until end-2015.

MHB, majority-owned by MISC Berhad (MISC), which in turn is a subsidiary of national oil and gas company Petroliam Nasional Bhd (PETRONAS), also “continues to be reliant on the domestic O&G exploration and production contracts”, which are derived directly from PETRONAS or PETRONAS’ production sharing contractors, it noted.

Nevertheless, it still held a stable outlook on MHB’s future prospect as it expects the latter to maintain its business and financial risk profile associated with the upstream O&G services sector.

It added that the proceeds from the sukuk programme is mainly to upgrade MHB’s yard facilities under its yard optimisation programme, which it has embarked on in 2006, and to increase liquidity in light of the group’s erratic cash flow generation, and fund its capital expenditures of approximately RM338 million and RM151 million for FY2014 and FY2015, respectively.

“Downward rating pressure could emerge in the event of a significant deterioration in the company’s order book replenishment,” MARC concluded.

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