MARC DOWNGRADES SCOMI GROUP BERHAD’S RM500 MILLION MTN PROGRAMME TO A FROM A+, PLACES THE RATING ON MARCWATCH NEGATIVE

Apr 9, 2012 -

MARC has downgraded its rating on Scomi Group Berhad’s (Scomi or group) RM500 million Medium Term Notes (MTN) programme to A from A+ and concurrently placed the rating on MARCWatch Negative. The rating action affects RM200 million of outstanding MTNs.

The downgrade follows the release of Scomi’s unaudited results for the financial year ended December 31, 2011 (FY2011). While Scomi had earlier posted an unaudited pre-tax profit of RM47.7 million for the first half of the financial year at the time of MARC’s October 2011 rating action, the full year results shows larger pre-tax losses of RM238.1 million compared to FY2010’s pre-tax loss of RM174.8 million. The full-year losses have eroded its capital base, which in turn saw its gearing as measured by the debt-to-equity ratio increase to 1.86 times (x). The downgrade reflects the group’s weak operating performance, negative discretionary cash flow and limited financial flexibility. Scomi is currently in breach of its covenanted debt-to-equity ratio of 1.25x, while its annual debt service cover ratio (ADSCR) for FY2011 was at the minimum required level of 1.50x.

Bondholders have granted Scomi waivers of covenant breaches until the maturity of the notes and consented to a waiver of scheduled sinking fund build-up payments which were to be used for the redemption of outstanding RM200 million notes due in September 2012. The group has proposed a corporate exercise involving an internal restructuring at its subsidiary company to upstream cash to the holding company and disposal of certain oil and gas assets, the proceeds of which will be used to partially pay down the bond. Scomi intends to pursue a refinancing for the remaining bond.

The negative MARCWatch placement incorporates the execution risk associated with the aforementioned corporate exercise given the constrained timeframe of less than six months to complete the transactions. MARC understands that the proceeds from the asset disposals and upstreaming of cash to the holding company are expected to be received by end-June 2012 and end-August 2012 respectively, while the refinancing exercise is expected to be completed by September 28, 2012. MARC will continue to monitor the developments, and will resolve the MARCWatch listing upon the completion of the corporate exercise. The rating will likely be lowered in the event of slippages in the indicated timetable for the corporate exercise.

Contacts:
Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my;
Sabesh Parameswaran, +603-2082 2260/ sabesh@marc.com.my;
Francis Xaviour Joe, +603-2082 2279/ fxjoe@marc.com.my.