MARC AFFIRMS ITS A+IS RATING ON ALAM MARITIM RESOURCES BERHAD’S SUKUK; REVISES OUTLOOK TO NEGATIVE

Jan 9, 2015 -

MARC has affirmed its rating of A+IS on Alam Maritim Resources Berhad's (Alam Maritim, or the group) RM500 million Sukuk Ijarah Medium-Term Notes (Sukuk). The outlook on the sukuk rating is revised to negative from stable. The rating action affects RM230 million of outstanding notes issued under the rated programme. The negative outlook reflects a decline in revenue and consolidated earnings during the nine months ended September 2014. The outlook also takes into account the softening industry trends in the offshore support vessel (OSV) segment as well as the recent sharp slump in oil prices which increases the potential for wider financial performance volatility.

The affirmed rating incorporates Alam Maritim’s established position in the OSV segment with an operating track record of about 16 years and sizeable fleet base of 44 vessels, including those held with jointly controlled entities. The vessel fleet, of which half comprises anchor handling tug supply (AHTS) vessels, accounts for approximately 16% of total domestic OSVs as at end-September 2014. The rating also considers the group’s reduced debt levels and improved liquidity position arising largely from the proceeds of a private placement of new shares that raised RM166 million that was partly utilised to repay borrowings.   

Alam Maritim’s OSV segment remains the group’s core business, accounting for 62% and 72% of the group’s total consolidated revenue and pre-tax profit respectively in 9M2014. The remaining contributions were derived from its subsea and offshore, installation and construction (OIC) segments. MARC notes the slower order book replenishment during 2014, as evidenced by the 31.8% reduction in the outstanding order book in its OSV segment to RM726.2 million as at end-September 2014 (end-2013: RM1,064.7 million), has impacted the vessel utilisation rate. The OSV segment’s pre-tax profit (including associates and jointly controlled entities (JCE), which are special purpose vehicles incorporated to hold vessels) declined by 20.6% to RM51.1 million in 9M2014. Excluding contribution from associates and JCEs, the OSV segment’s pre-tax profit would have been about RM20.3 million in 9M2014, which underscores the increased reliance on the performance of its associates and JCEs. As a major OSV provider, Alam Maritim’s contract flows remain dependent on the capital expenditure of oil majors, in particular PETRONAS, which has indicated plans to scale back on future contract roll-outs amid the challenging outlook for global crude oil prices.

For 9M2014, Alam Maritim’s consolidated revenue and pre-tax profit declined by 16.7% and 23.5% year-on-year (y-o-y) to RM289.1 million and RM60.0 million respectively, due also to losses incurred from the OIC segment and lower contribution from its subsea segment. The subsea and OIC segment registered lower pre-tax profit by 56.9% to RM8.8 million (9M2013: RM20.4 million). Cash flow from operations increased to RM192.8 million (9M2013: RM95.9 million) due to higher receipts from customers on completed projects.

Alam Maritim’s consolidated leverage position has steadily improved as the group continued to pare down its borrowings. Part of the proceeds from a private placement of new shares amounting to RM95.0 million was used for debt repayment, further reducing the debt-to-equity (DE) ratio to 0.39x in 9M2014 (end-December 2013: 0.92x). However, taking into account Alam Maritim’s share of debt of its associates and JCEs, the adjusted DE ratio would be 0.8x as at end-September 2014 (end-December 2013: 1.4x). MARC believes that the adjusted DE is likely to increase as the group, through its jointly-owned entity, intends to largely finance the acquisition of a driving support vessel (DSV) costing about US$80 million. The DSV will replace the currently leased DSV from a third party and is expected to strengthen the services provided by its subsea segment. Alam Maritim’s liquidity position as reflected by cash and cash equivalents of RM192.2 million as at end-September 2014 is supportive of its ability to meet the upcoming MTN repayments amounting to RM115 million due in 2015.

The negative rating outlook would be revised to stable if there is a reversal in the declining earnings and revenue trend. MARC foresees that the prospects for the upstream oil sector players will remain challenging under the present low oil prices, and if the challenging conditions in the sector result in slow contract inflows over the next 12 to 18 months that would result in a weakening of the group’s financial metrics, the rating would be downgraded.

Contacts:
Sonia Lim, +603-2082 2267/ sonia@marc.com.my;
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.