MARC has assigned a long-term rating of AA-ID (cg) to KMCOB Capital Berhad’s (“KCB”) RM630 million Murabahah Medium Term Notes (“MMTN”) facility. The “cg” suffix depicts the Corporate Guarantee by its 100% shareholder KMC Oiltools (Bermuda) Ltd (“KMCOB”). Pursuant to the completion of a restructuring exercise, KMCOB will be the holding company of Scomi Group Berhad’s (“Scomi”) oilfield services business globally. The outlook for the rating is stable.

The rating is supported by the positive outlook of the upstream segment of the oil and gas (“O&G”) industry, improving profitability, and strong competitive position of Scomi’s oilfield services business. Nevertheless, the rating is moderated by the relatively weak capital structure, and the limited financial flexibility of the KMCOB group, notwithstanding the proposed listing scheduled for 2007.

KCB, a wholly-owned subsidiary of KMCOB, is a special purpose vehicle established to issue the proposed MMTN as part of Scomi’s restructuring of its oilfield services business. The proceeds of the MMTN programme is proposed to be utilized to settle inter-company advances between KMCOB Group and Scomi, to pare down the borrowings of KMCOB, Kota Minerals & Chemicals Sdn Bhd (“KMCSB”) and KMC Oiltools Overseas, for the settlement of inter-company advances within the Scomi Group, and for the working capital and future capital expenditure requirements of the KMCOB Group.

The restructuring will result in the placing of all Scomi subsidiaries in the oilfield services division under one legal entity, i.e., KMCOB, and the issuance of the RM630 million MMTNs by KCB. KMCOB group is targeted to be listed on the Stock Exchange of Singapore (“SGX”).

The KMCOB group’s core activities will be mainly in drilling fluids (“DF”) and drilling waste management (“DWM”), which together constituted 72% of Scomi’s turnover in FYE2005. DF and DWM’ s contribution to Scomi’s revenue increased by 144% year on year in FYE2005, due mainly to Scomi’s foray into the DWM business via the acquisition of Oiltools International Ltd in 2004. Scomi’s oilfield services division is believed to be one of the larger global players.

Revenue and profitability of the restructured KMCOB group are currently showing an upward trend. Revenue had increased to RM780 million in FYE2005, with net profit increasing to RM175.0 million in FYE2005. KMCOB has projected that the group’s revenue will grow at an average rate of 35.0% per year from FYE2007 to FYE2009 and 3.0% per year from FYE2010 to FYE2013. The key drivers of near to intermediate term revenue growth will be high oil prices (to the extent rig activities will be boosted), potential gains in market share arising from KMCOB’s ability to offer integrated packages of DF and DWM services, and higher standards of environmental management (which will spur the demand for DWM services).

The outlook reflects the expectation that the company will generate strong free cash flow while maintaining a strong market position.