Oilcorp Berhad’s (Oilcorp) RM70 million Murabahah Underwritten Notes Issuance Facility/Islamic Medium Term Notes Facility (MUNIF/IMTN) has been affirmed at MARC-2ID/AID, reflecting Oilcorp’s position as an integrated, multidiscipline engineering, procurement and construction (EPC) services provider in various oil and gas, petrochemical, power generation, semiconductor and other related industries. Although the ratings are moderated by the sustainability of its revenue and profits due to existing projects nearing completion, Oilcorp continues to aggressively tender for various new projects to improve its order book and profits.

Oilcorp is an investment holding company with its subsidiaries providing integrated, multidiscipline engineering services to the abovementioned industries. Contracts from these activities contributed to the upward trend in its revenue since FY2001; contributing nearly 65% to total revenue in FY2004. The group is also involved in property development, resort operation and property investment. The property development activity is an equally important profit unit to the group as it helped sustain the group’s double digit, albeit declining operating profit margins in FY2004, resulting from higher operating costs.

The various deepwater discoveries since 2002 and the high oil prices prompted the implementation of many oil and gas projects in the immediate near future. This is expected to bode well for Oilcorp as the group is expected to leverage on the demand for service providers once actual oil and gas production
activities take-off. The group continues to aggressively tender for various new projects to increase the value of its outstanding order book and number of contracts in-hand.

The group was recently given the mandate by the Ministry of Agriculture and Agro-Based Industry to spearhead a national fisheries consortium, Konsortium Perikanan Nasional Berhad (KPNB) with a minimum 51% equity stake. KPNB upon inception shall manage, operate and oversee the integrated activities of deep-sea fishing, marketing and distribution, and fish processing. Moving forward, the fisheries division is expected to provide a stable revenue stream to the group. Whilst viewed as a potential recurrent income contributor, the venture into this industry will require Oilcorp to gear up accordingly in stages.

Debt leverage has been maintained at less than 1.0 time for the last four fiscal years, on the back of growing shareholders’ funds. Nevertheless, for the nine months ended September 2005, debt leverage rose to 1.3 times as higher borrowings for its projects outstripped the accumulation of retained earnings. The base case cash flow projections show that Oilcorp is sufficiently capable of complying with the minimum DSCR covenant of 1.5x. Notwithstanding, liquidity risk is addressed through the progressive build up of the FSRA starting from six months before the reduction date for the MUNIF and three months before the maturity date for the IMTN. The first reduction of the MUNIF/IMTN facility falls in October 2009.