MARC DOWNGRADES SCOMI GROUP BERHAD'S DEBT RATING TO BB+; MAINTAINS RATING ON MARCWATCH NEGATIVE

MARC has lowered its debt rating on Scomi Group Berhad's RM500 million Medium Term Notes programme to BB+ from BBB+. The rating remains on MARCWatch Negative, where it was placed on June 21, 2012. The rating action affects RM200 million of outstanding notes due on September 28, 2012.

The rating downgrade primarily reflects heightened repayment uncertainty as a result of Scomi's delay in addressing the remaining contingencies to the closing of earlier announced equity divestments. MARC notes that Scomi has yet to fulfil the last remaining conditions precedent to Nigerian-based oil service company AOS Orwell Ltd's obligation to close its acquisition of equity stakes in Scomi Nigeria Pte Ltd and Oiltools Africa Ltd. Although Scomi had received capital repayment proceeds from 43%-owned Scomi Marine Berhad (SMB) amounting to RM58.0 million, the holding company is also dependent on expected proceeds from the equity divestments of RM57.6 million and a partial refinancing of the notes into a RM85 million bank loan to fund its upcoming September 2012 principal repayments.

The rating agency said that the setbacks that Scomi had encountered in its initiatives to address its final repayment of the outstanding notes had increased the risk that the group would have inadequate funds to cover its obligations on their due date. Scomi now expects to complete the aforementioned equity divestments by September 20, 2012 and to reach financial close on its RM85 million bridging facilities shortly after to ensure the availability of the funds prior to the maturity date of the notes. MARC opines that the holding company is currently dependent on favourable conditions to satisfy remaining contingencies to closing the equity divestment and refinancing transactions. The rating agency notes that timely receipt and placement of proceeds in its debt service reserve account (DSRA) is also required for Scomi to meet its tight repayment timeline. Scomi has not formulated a specific contingency plan to address further delays to the above mentioned transactions.

MARC will resolve the MARCWatch Negative placement and withdraw its BB+ rating on Scomi's MTN programme once the holding company has completed repayment of the notes. In the event that Scomi fails to make the repayment due on September 28, 2012, MARC will lower Scomi's debt rating to D.

Contacts: Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my; Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.

12 September 2012