RAM Ratings puts SapuraKencana on Rating Watch, with developing outlook

Published on 20 November 2013

RAM Ratings has placed the AA3 rating of SapuraKencana Petroleum Berhad’s (SapuraKencana or the Group) RM700 million Sukuk Mudharabah Programme (2011/2026) on Rating Watch, with a developing outlook. The Rating Watch has been triggered by the Group’s recently announced proposed acquisition of Newfield International Holdings Inc’s (Newfield) Malaysian oil and gas (O&G) assets for USD898 million (RM2.85 billion).

At this juncture, the financing structure of the proposed corporate exercise may take several distinct forms, which could have very different consequences on SapuraKencana’s credit profile. The proposed exercise and its final outcome as well as value are also subject to various levels of approval.

The proposal to acquire the entire equity of Newfield Malaysia Holdings Inc (Newfield Malaysia), which has assets and interests in 9 oil fields in Malaysia, comes 6 months after the completion of SapuraKencana’s USD2.5 billion acquisition of a fleet of tender rigs from Seadrill Limited (Seadrill), and 2 years after the RM11.85 billion merger between SapuraCrest Petroleum Berhad and Kencana Petroleum Berhad. “Subject to the final outcome and value of the acquisition, the increased borrowings, should the acquisition be debt-funded, would exert further pressure on SapuraKencana’s balance sheet. Apart from this, we also note the Group’s rapid growth,” observes Kevin Lim, RAM’s head of Consumer and Industrial Ratings. “We are cautious about SapuraKencana’s latest venture given that the upstream O&G segment is relatively new to the Group,” adds Lim. This is, however, mitigated to some extent by the fact that Newfield Malaysia’s existing management (together with its technical and operations team) is expected to remain intact and SapuraKencana’s own experience in the joint operation of the Berantai oilfield.

“On the other hand, we do not rule out the possibility of SapuraKencana decoupling Newfield Malaysia’s upstream business - which has a different risk profile from its existing oilfield services - to preserve the Group’s current profile,” Lim notes.

RAM is monitoring the latest developments in respect of the proposed transaction, and will assess its impact on SapuraKencana’s ratings when more details become available. The Rating Watch will be resolved upon the completion of our analysis.

RAM’s Rating Watch highlights a possible change in an issuer's debt rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated debt under special surveillance by RAM. In a broader sense, it covers any event that may result in changes in the risk factors relating to the repayment of principal and interest.

Issues will appear on RAM's Rating Watch when some of the above events are expected to or have occurred. Appearance on RAM's Rating Watch, however, does not inevitably mean that the rating will be changed. It only means that a rating is under evaluation by RAM and a final affirmation is expected to be announced. A "positive" outlook indicates that a rating may be raised while a "negative" outlook indicates that a rating may be lowered. A “developing” outlook refers to those unusual situations in which future events are so unclear that the rating may potentially be raised or lowered.

Media contact

Evelyn Khoo

(603) 7628 1075

evelyn@ram.com.my