Published on 20 December 2013
RAM Ratings has placed the
ratings of Syarikat Borcos Shipping Sdn Bhd’s (Borcos or the Group) following
debt issues on Rating Watch, with a negative outlook:
i) the AA3 rating of Borcos’
RM160 million Sukuk Ijarah Medium-Term Notes (2008/2014)
(RM160 million
IMTN);
ii) the AAA(bg) rating of
Borcos’ RM125 million Bank-Guaranteed Sukuk Ijarah Medium-Term
Notes
(2010/2017) (RM125 million IMTN); and
iii) the AAA(bg) rating of
Borcos’ RM30 million Bank-Guaranteed Bai’ Bithaman Ajil Islamic
Debt
Security (2010/2017) (RM30 million IMTN).
The RM125 million IMTN and the
RM30 million IMTN are collectively known as the “Bank-Guaranteed Issues”.
The Negative Watch on the
Bank-Guaranteed Issues is premised on the withdrawal of monies from the Finance
Service Reserve Account (FSRA) to service intermediate profit payments, which
is a technical breach of obligations under the transaction documents. The funds
in the FSRA are meant to be used for the final profit payment or upon the
crystallisation of the bank guarantee. Borcos is seeking noteholders’
indulgence to replenish the said FSRA by end-January 2014.
The Bank-Guaranteed Issues
benefit from an unconditional and irrevocable bank guarantee extended by Bank
Pembangunan Malaysia Berhad (BPMB, currently rated AAA/Stable/P1 by RAM), which
covers the principal amount of the said issues. Meanwhile, one period’s profit
payment on the securities is pre-funded in a FSRA. Together, the bank guarantee
and the pre-funded profit payment enhance the credit worthiness of the
Bank-Guaranteed Issues beyond Borcos’ inherent or stand-alone credit strength.
In our view, the withdrawal of monies from the FSRA for the Bank-Guaranteed
Issues and the Issuer’s decision not to immediately replenish the said FSRA
diminished support for the ratings of the Bank-Guaranteed Issues, which is
provided by both the bank guarantee and the pre-funded profit payment.
However, we understand that
Borcos has applied to BPMB to have the bank guarantee extended to cover one
period’s profit payment as well as the principal amount of the Bank-Guaranteed
Issues. Decisions on the matter are expected to be made by end-January 2014. If
BPMB approves the Group’s application, the ratings of the Bank-Guaranteed
Issues shall be reaffirmed. Otherwise, the ratings shall be downgraded to that
of the stand-alone credit profile of Borcos.
Elsewhere, the AA3 issue rating
of Borcos’ RM160 million IMTN has been placed on Negative Watch. This was based
on a deterioration in Borcos’ stand-alone credit profile, which arose from its
stressed liquidity profile. In addition, contrary to our previous expectation
in April 2013 of an intended merger and subsequent listing of Borcos and
another company (involved in oil tankers), there has been an abrupt change in
key management personnel and strategy, with the new management relatively new
to the vessels-owning business. We have also observed a weakened business
profile stemming from reduced revenue stability (due to a smaller contribution
of medium-term time charters to the Group’s revenue) and a potential divestment
of two of its largest and newer vessels.
To help manage its liquidity,
Borcos has represented that it intends to apply to BPMB for further credit
lines or banking facilities. Decisions on the matter are expected to be made by
end-January 2014.
We expect to resolve the Rating
Watch on the ratings within the next 2 to 3 months. 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
Carol Pang
(603) 7628 1076
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.