MARC AFFIRMS ITS A- RATING ON PERDANA PETROLEUM BERHAD'S DUAL CURRENCY REVOLVING PROGRAMME; OUTLOOK NEGATIVE

Nov 21, 2011 -
MARC has affirmed its rating of A- on Perdana Petroleum Berhad's (Perdana Petroleum, formerly known as Petra Perdana Berhad) Dual Currency Revolving Programme with a negative outlook. The rating action affects outstanding secured serial bonds of RM105 million issued under Tranche 1 of the programme.
The bonds are the company's remaining obligations under the programme with the November 2011 repayment of RM10 million Medium-Term Notes (MTN) issued under Tranche 2 of the programme and the subsequent cancellation of the MTN facility.
The affirmed rating considers the uptick in revenue generation in the first six months of 2011 and signs of a turnaround in Perdana Petroleum’s financial performance after four consecutive quarters of losses. At the same time, MARC believes that the company’s significant upcoming bond maturities in 2012 will continue to pressure its discretionary cash flow.

Perdana Petroleum’s leading market position within the mid-size anchor handling tug and supply (AHTS) vessel category, the continued paring down of its debt to a more manageable level and its fund raising plans partially offset its near-term operating challenges and the refinancing risk associated with its 2012 bond maturities.

Perdana Petroleum is an offshore marine vessel supplier supporting primarily the upstream oil and gas industry. The company’s fleet renewal program which was initiated in 2007 will be completed by the end of this year upon the final delivery of a work barge. Its fleet gained seven new vessels last year. Of its new-build vessel fleet, seven are on time charter for more than 12 months, four vessels on time charter for tenures of six to eight months and three vessels are on spot charter. Excluding eight vessels which are laid-up, the fleet’s utilisation rate climbed to 85% as at end-September 2011 compared to an average of 65% in FY2010.
MARC opines that the company should benefit from the pick-up in drilling and installation activities in oil and gas industry, especially medium water-depth exploration and production activity. The company is Malaysia’s largest owner of mid-sized 10,000 brake horsepower (bhp) class AHTS vessels. MARC notes that nearly half of the vessels are on charter for less than 12 months.

The group’s results for the six months to June 30, 2011 (1HFY2011) indicate improved operating prospects. Perdana Petroleum’s revenue rose by 30% to RM140.3 million (1HFY2010: RM108.3 million), allowing the group to post a modest profit of RM0.8 million. The group had incurred a pre-tax loss of RM72.9 million in FY2010 as a result high mobilisation cost from the delivery of seven new-builds during the year, and impairment charges on property, plant and equipment and refundable deposits following adoption of new accounting standards for vessel financing.
The group's 1HFY2011 operating margin of 4.44% appears low compared to historical consolidated margins of 14% to 25% which had previously reflected the contributions from former subsidiary, Petra Energy Berhad (Petra Energy). The brownfield integrated services provider had previously accounted for 60% of consolidated group revenues.

MARC took note of the group’s effort to deleverage during FY2010; its debt-to-equity ratio declined to 0.49 times (x) (FY2009: 0.79x) subsequent to a right issue and private placement exercise which raised cash of RM111.7 million. The company redeemed note obligations totalling RM95 million in FY2011; a similar amount was redeemed the previous financial year. Apart from undrawn bank facilities, potential sources of liquidity to meet its forthcoming RM70 million bond maturities in FY2012 include proceeds from a private placement offering and/or the divestment of Petra Energy shares.

The negative outlook reflects the group’s large forthcoming bond maturities and MARC’s view that its near-term profitability and liquidity metrics will be close to the thresholds for the current rating, despite improving business conditions. The rating could come under downward pressure should Perdana Petroleum be unable to secure additional liquidity resources to pay down its upcoming bond obligations in FY2012.

The negative outlook could revert to stable once Perdana Petroleum exhibits a sustained ability to generate free cash flow and profitability in coming quarters, and if uncertainties relating to sources for forthcoming bond maturities are sufficiently addressed.

Contacts:
Sabesh Parameswaran, +603-2082 2260/ sabesh@marc.com.my;
Goh Shu Yuan, +603-2082 2268/ shuyuan@marc.com.my;
Francis Xaviour Joe, +603-2082 2279/ fxjoe@marc.com.my.