Dubai, UAE - Global ratings agency Standard & Poor's said on Wednesday that it had raised its long-term corporate credit ratings on Oman-based MB Holding and its wholly owned subsidiary MB Petroleum Service to B from B-. The outlook is stable.
"The rating actions follow our reassessment of MB Holding's liquidity as less than adequate and a modest improvement in the firm's operating cash flow generation. The improved view of liquidity reflects MB Holding's demonstrated access to bank-market funding at relatively favourable terms, which has enabled it to refinance maturing debt obligations as they fall due.
"It also reflects MB Holding's track record of funding subsidiary MB Petroleum Service's liquidity shortfalls through equity injections and subordinated loans."
According to S&P, MB Petroleum Service is reliant on liquidity support from the parent company because of a debt-limitation covenant under its US$320mn bond. "Consequently, with the improvement of liquidity and operating cash flow, we now assess the group's financial risk profile as 'aggressive,' while the business risk profile remains 'weak.' "
Key business risk factors include the group's participation in the competitive and highly cyclical oilfield services, exploration and production and copper mining operations, and limited free operating cash flow (FOCF) under our price assumptions.
Key business strengths are MB Holding's strong position in the oil services sector in the Sultanate of Oman (A/Stable/A-1), diversification across four business segments, a track record or rising oil and copper production, and a degree of visibility stemming from contract-based revenues, the agency said.
"Our assessment of MB Holding's financial risk profile takes into account our view of the company's aggressive leverage, fair corporate governance practices, opportunistic investment strategy, generous dividend policy, and less-than-adequate liquidity. Although we view MB Holding's ratios as strong for the rating, our financial risk assessment centers more on the low FOCF and debt increases in recent years.
"The stable outlook reflects our view that prevailing, healthy oil and copper prices and a slight increase in demand for oilfield services should ensure the group's generation of relatively strong cash flows in the near term. However, we expect most of this cash to be consumed by capital spending and dividends."
The ratings agency however cautioned that it could "lower the ratings on MB Holding and MB Petroleum Service in the event of weakened liquidity, material negative free cash flow, or debt increases, which could result from opportunistic investment decisions."
© Muscat Daily 2012
