Jun 20, 2012 -
MARC has downgraded its rating on Scomi Group Berhad's RM500
million Medium Term Notes programme to BBB+ from A. The rating continues to be
maintained on MARCWatch Negative. The rating action affects RM200 million of
outstanding notes.
The downgrade in Scomi's rating reflects noteholders' rising
susceptibility to event risk as a result of a delay encountered in the
completion of its announced divestments of equity in subsidiaries, Scomi
Nigeria Pte Ltd (SNPL) and Oiltools Africa Ltd (OAL). The delay in its asset
disposal programme has impacted the timeline for Scomi's proposed partial
refinancing of the outstanding notes given that the refinancing transaction is
conditioned upon the completion of its asset disposal plan. MARC is of the view
that the compressed timeframe to complete the asset sales and proposed
refinancing transaction significantly increases the risk that the repayment of
notes will not be made on a timely basis. The outstanding notes mature on
September 28, 2012, and liquidity and refinancing risks will increase as the
date approaches.
The rating downgrade also takes into account the continuing
pressure on Scomi's operating performance and its insufficient cash flow
generation. As such, MARC believes that the risk profile of the rated notes is
no longer consistent with an 'A' rating level.
The group managed to post an unaudited pre-tax profit of
RM22.9 million in the first quarter of 2012 (1Q2012) compared with full-year
pre-tax losses of RM225.3 million and RM174.8 million in 2011 and 2010
respectively. Its operational cash flow, however, was negative RM11.9 million
for 1Q2012. Scomi's consolidated debt-to-equity ratio, meanwhile, rose further
to 1.95 times as at end-March 2012.
Scomi is dependent on asset sales, capital repayment from
43%-owned Scomi Marine Berhad (SMB) and refinancing to repay the outstanding
notes. While Scomi has encountered delay in planned asset sales, the group's
internal restructuring was completed in April this year as per schedule. SMB
will be making a capital repayment to its shareholders following the disposal
of several marine logistic subsidiaries to another group entity. Scomi expects
to receive a capital repayment of RM58.0 million from SMB.
The proceeds from Scomi's announced equity divestments of
its entire equity interest in SNPL and a 2% equity interest in OAL to
Nigerian-based oil service company AOS Orwell Ltd are now likely to be received
by middle to end of August this year, two months from its original June target
date. The delay is due to the several conditions precedent to the acquisition
that has been imposed by the buyer; MARC understands from Scomi that efforts
are being made to fulfill them. Scomi's refinancing target date has also been
pushed back for two months. MARC views the residual execution risk surrounding
the aforementioned equity divestments and refinancing risk as the key risks
facing Scomi.
The continued negative watch placement reflects MARC's view
that further downward rating pressure could develop in the event that the
revised target completion dates for the aforementioned equity divestments and
RM85.0 million refinancing are missed.
Contacts:
Sabesh Parameswaran, +603-2082 2260/ sabesh@marc.com.my;
Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my;
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.
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