MARC has placed its A+IS(cg) issue rating on KMCOB Capital Bhd's (KMCOB) RM343.1 million Sukuk Murabahah Medium Term Notes (MTN) programme on MARCWatch Negative

MARC has placed its A+IS(cg) issue rating on KMCOB Capital Bhd's (KMCOB) RM343.1 million Sukuk Murabahah Medium Term Notes (MTN) programme on MARCWatch Negative. The rating actions affect RM302.55 million of outstanding notes issued by KMCOB. KMCOB is the funding vehicle of Scomi Oilfield Limited (SOL), which in turn is a wholly-owned subsidiary of Scomi Group Bhd (Scomi). MARC rates the notes based on the corporate guarantees from Scomi Oiltools Bermuda Limited (SOBL) and SOL.

MARC had earlier affirmed KMCOB Capital's rating in October 2012 but revised its rating outlook to negative from stable to reflect delay in SOL's disposal of its West African assets and its slower-than-expected pace of deleveraging. The current rating action is driven by SOL's weak consolidated liquidity due to outflows from debt service at the issuer and SOL Group, capital spending, additional requirements in working capital for SOL Group's new projects, as well as the delay to obtain additional financing for its new projects. The MARCWatch Negative also reflects uncertainties tied to the timing of the completion of the internal reorganisation of SOL and the reverse takeover of the New SOL Group by Scomi Marine Bhd (SMB), initially targeted for completion by end-2012. The delay in the completion of SOL's reorganisation will limit its ability to improve its credit metrics over the near term. The weak operating performance of SOL's Western Hemisphere oilfield services business continues to weigh on its consolidated performance notwithstanding the improved results for its Eastern Hemisphere oilfield service operations for the first nine months of 2012 compared to that of the prior year corresponding period.

KMCOB has obtained sukukholders' approval to exclude restructuring-related impairments on SOL's Western Hemisphere oilfield services business from its gearing calculation for the financial year ending December 31, 2012 and for a temporary waiver of compliance with SOBL's annual debt service cover ratio (ADSCR) covenant from October 1, 2012 until June 30, 2013. (SOBL's ADSCR computation is based on the consolidated financial statements of immediate holding company SOL.) Although KMCOB has avoided a potential near-term breach in its ADSCR covenant and technical default arising from non-maintenance of its minimum required ADSCR, MARC remains concerned about the group's tight liquidity and delay in obtaining additional financing for its new projects.

MARC will continue to monitor developments; delay in restoring liquidity levels, deterioration in SOL's credit metrics or delay in the completion of SOL's reorganisation beyond the first quarter of 2013 will likely trigger a downgrade of KMCOB's rating.

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

January 16, 2013