KMCOB Capital Bhd - 2007

MARC has affirmed the AA- ID (cg) rating on KMCOB Capital Berhad’s (“KMCOB Capital”) RM630.0 million Murabahah Medium Term Notes (“MMTN”) facility. The outlook for the rating is stable. KMCOB Capital is an indirect wholly-owned subsidiary of Scomi Oilfields Limited (“SOL”), the investment holding company of Scomi Group Bhd’s (“Scomi”) oilfield services division, and was established as a special purpose vehicle to issue the RM630.0 million MMTN as part of Scomi’s restructuring exercise in 2006. The “cg” suffix on the rating reflects the corporate guarantee by its 100% shareholder, Scomi Oiltools Bermuda Limited, (“SOBL”), a wholly-owned subsidiary of SOL.

The rating reflects the credit profile of Scomi’s oilfield services operations which is core to KMCOB Capital’s debt servicing capacity. The rating also considers the strong market position and sustained favourable conditions of the markets for oilfield services. The oilfield services’ improving financial profile, moderate financial policy and good financial flexibility continues to underpin its credit strength.

Scomi, through the SOL group, is one of the world’s leading providers of drilling fluids (“DF”) and drilling waste management (“DWM”) services. The DWM, acquired in 2004, and the DF business make up its oilfield services division, Scomi’s largest revenue contributor. In FY2006, SOL’s revenue grew by 52% to USD322.7 million on account of growing value of contracts from the oilfield services division. Operating profit margins rose to 9.4% in FY2006 as compared to 3.5% in the previous year. Growth will be sustained by increasing drilling activities, heightened environmental concerns and stricter government policies particularly on waste discharge worldwide.

Debt to equity net of cash balances was 1.45 times as at FY2006, in compliance with the terms of its MMTN issuance.

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

Major Rating Factors

Strengths

• Strong market position in the drilling fluids and drilling waste management business; and
• Improving financial profile.

Challenge/Risk

• Cyclical oil and gas industry although currently mitigated by strong upstream capital spending.