Petra Perdana Bhd - 2008

MARC has affirmed Petra Perdana Berhad’s (Petra) rating of A+ on its RM800 million Dual Currency Revolving Financing Facility comprising RM400 million Nominal Value Secured Serial Bonds and up to RM400 million Medium Term Notes Programme. Concurrently, MARC has revised the rating outlook to developing from stable to reflect the group’s tighter than previously anticipated liquidity position as a result of heavy debt maturities in the next two quarters through end-March 2009 coupled with slow receivables collection. The developing outlook acknowledges that while a number of alternatives are available to Petra to meet its debt repayment, the timing of some of the actions which are most likely to be pursued by the group are subject to uncertainty. The rating is underpinned by the group’s strong performance in two core businesses involving offshore marine vessel services and integrated brown field services and a strong profitability trend.

Bursa Malaysia-listed Petra has a long-standing track record as an integrated service provider offering contract services in offshore operation and maintenance, engineering, fabrication and offshore marine services to the upstream oil and gas industry. With a fleet of 20 vessels translating into a total capacity of about 113,174 brake horse power as of September 30, 2008, Petra is one of the largest domestic vessel owners. Its anchor handling tug vessels are skewed towards larger vessel capacities that have enabled the group to undertake higher margin contracts associated with deepwater-related jobs.

For financial year ended December 31, 2007 (FY2007), total revenues grew by 22.4% to RM665.2 million, of which RM480.9 million (72.3%) was contributed by its integrated brown field services division and the balance RM184.3 million (27.7%) from its marine services division. In the first half of 2008 (1HFY2008), revenue declined slightly to RM302.3 million as compared to the previous corresponding period. However, operating profit margins remained robust at 22.7% supported by higher charter rates from its marine services division.

Petra’s net cash flow from operations rose to RM90.9 million in 1HFY2008, a significant improvement from the RM62.8 million achieved for full year operations in 2007. For FY2008, Petra is expected to register  lower revenue  than forecast  due to  late delivery of vessels.  Two of them, Petra   Frontier and Petra Horizon, will be delivered a few months later than scheduled during the year. Notwithstanding, Petra has been able to command higher vessel charter rates on its new vessels due to prevailing strong demand for marine assets.   

The group’s debtors’ turnover remained high at 156 days in FY2007 largely due to slower collection on the RM900.0 million Shell contract under its integrated services division, attributed to a time lag between client certification upon completion of project milestones and the actual billing.

Funding options currently available to Petra to address its near-term debt repayments include an early repayment of an inter-company loan from a subsidiary, a refund of deposits for the purchase of new vessels, a sale of older vessels, equity divestments and utilising funds in the Fleet Replacement Account (FRA). The group also has unrestricted cash of RM185.9 million as of June 30, 2008, which will likely be used to reduce its debt leverage which stood at 1.15 times as at end June 2008.

The Debt Service Reserve Account 1, earmarked for coupon servicing and Bond repayments, stood at RM32.7 million as of September 30, 2008. The FRA, which is for the purpose of its fleet renewal, amounted to about RM74.0 million as of July 31, 2008.

Petra’s rating outlook could be revised to negative if insufficient progress is made by way of pursuing refinancing options, closer to the maturity dates of its maturing debt. Conversely, MARC may revise the outlook to stable once the certainty of liquidity sources for the repayment of its maturing debt is established.

Major Rating Factors

Strengths

• Solid operating performance from its offshore marine vessel services and integrated brownfield services;
• Established track record in integrated brownfield services with demonstrated ability to replenish order book; and
• Client base comprises oil majors of high credit standing.

Challenges/Risks

• Increasing liquidity pressures arising from heavy near-term debt maturities; and
• Aggressive fleet expansion by domestic offshore marine vessel service providers.