RAM Ratings has placed the A1/P1 ratings of Syarikat Borcos Shipping Sdn Bhd's (Borcos or the Group) RM160 million Sukuk Ijarah Medium-Term Notes (2008/2014) on Rating Watch, with a negative outlook. Meanwhile, the stable outlook on the AAA(bg) ratings of Borcos' RM55 million Bank-Guaranteed Sukuk Ijarah Medium-Term Notes (2010/2015), RM125 million Bank-Guaranteed Sukuk Ijarah Medium-Term Notes (2010/2017) and RM30 million Bank-Guaranteed Bai' Bitahaman Ajil Islamic Debt Security (2010/2017) (collectively known as the Bank-Guaranteed Issues) has been maintained. Borcos provides marine support services to the offshore oil and gas (O&G) industry, as well as integrated land-logistics services.
The Rating Watch reflects the recent decline in daily charter rates (DCRs) and low utilisation of Borcos' offshore support vessels (OSVs) that are operating on spot-charter basis; these factors had hampered its financial performance in 1H FY Dec 2010. Despite being protected by the cabotage policy, Malaysian-flagged OSVs are not shielded from the pressure of lower DCRs given the substantial upcoming supply of new local vessels and increased availability of foreign-flagged ones (particularly from Singapore); vessels ordered before the onset of the global slump are now coming on-stream. Domestic DCRs have shrunk some 10%-20% since early this year. This has been exacerbated by the slower-than-expected award of new contracts by Petroliam Nasional Berhad in 1H 2010. Meanwhile, the delivery of Borcos' 4 new vessels had been delayed by a few months; while these vessels are operating on short-term charter contracts ranging from 30 days to 7 months, the Group has yet to secure medium-term charter contracts for these vessels.
"Borcos' financial performance in 1H FY Dec 2010 came in below our expectations, with respective 8.6% and 21.7% (annualised) declines in revenue and operating profit before depreciation, interest and tax to RM83.42 million and RM28.43 million. Its gearing ratio climbed up from 2.24 times as at end-December 2009 to 2.88 times as at end-June 2010, driven by a heavier debt load for fleet expansion. Given this and its weaker earnings for 1H FY Dec 2010, its annualised funds from operations debt cover almost halved from 0.20 times to 0.11 times. Unless there is a significant pick-up in DCRs and the utilisation of its vessels in the near term, Borcos' full-year numbers are expected to remain below our expectations," notes Kevin Lim, RAM Ratings' Head of Consumer and Industrial Ratings.
RAM Ratings expects to resolve the Rating Watch upon the finalisation of our annual rating review on Borcos within the next 2 months.
Elsewhere, the enhanced AAA(bg) ratings for the Group's bank-guaranteed issues are not affected by the Rating Watch as they reflect the unconditional and irrevocable Kafalah guarantee extended by Bank Pembangunan Malaysia Berhad (BPMB) on their nominal values. BPMB carries AAA/stable/P1 ratings from RAM Ratings.
RAM Ratings' Rating Watch highlights a possible change in an issuer's existing 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 Ratings. 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 Ratings' Rating Watch when some of the above events are expected to or have occurred. Appearance on RAM Ratings' Rating Watch, however, does not inevitably mean that the existing rating will be changed. It only means that a rating is under evaluation by RAM Ratings 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.
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Media contact
Low Su Lin
(603) 7628 1071
sulin@ram.com.my
© Press Release 2010
