Vastalux Capital Sdn Bhd - 2008 / 2009

MARC has affirmed its AA-IS rating on Vastalux Capital Sdn Bhd’s (VCSB) RM100 million Sukuk Musyarakah. The rating carries a stable outlook. VCSB is a special purpose company wholly-owned and incorporated by Vastalux Sdn Bhd (Vastalux) to facilitate the issuance of the Sukuk Musyarakah. VCSB acts as the wakil under the transaction, investing Sukukholders capital contributions in the venture to undertake identified contracts awarded to Vastalux. The affirmed rating reflects the credit strength of payment streams arising from Vastalux’s performance of identified oilfield services contracts, secured mainly from Petronas Carigali Sdn Bhd (PCSB), the exploration and production arm of national oil company, Petronas. The tenure of and cash flow from the identified contracts, including a recently awarded contract of RM200.0 million, match VCSB’s obligations under the Sukuk Musyarakah. The rating continues to be moderated by Vastalux’s stand-alone credit profile and modest equity base.

The transaction structure of Sukuk Musyarakah provides for revenue from assigned contracts of Vastalux to be deposited into a designated account and applied to payment obligations under the Sukuk Musyarakah ahead of operational expenses related to the secured contracts. Payments from the identified contracts are remitted into Vastalux’s Proceed Account and subsequently transferred to VCSB’s revenue account to mitigate commingling of these collections with other cash flow of Vastalux.

Vastalux mainly focuses on offshore hook-up and commissioning, and offshore topside minor fabrication and major maintenance works for domestic exploration and production activities, Vastalux successfully secured RM318.4 million worth of new contracts  during FY2007 and the nine months ended September 30, 2008 (3QFY2008) attests to its satisfactory performance of its contract. Of this, contract revenues arising from performance of a RM200 million, 3-year hook-up and commissioning contract from PCSB in FY2007 was assigned to the Sukuk Musyarakah, resulting in an improvement in its contract cover ratio to the outstanding Sukuk Musyarakah close to five times and overall cash flow profile. As of 3QFY2008, approximately 52% or RM459.5 million of the estimated RM877.3 million contracts under the Musyarakah venture have been completed with major contracts awarded by PCSB achieving positive variances.

MARC expects the Musyarakah venture to continue performing in line with expectations given Vastalux’s ability to secure new contracts and to deliver on assigned contracts. Progressive build-up of its sinking fund through monthly  payments and  positive revisions made to the issue structure in FY2007; including the increase in the accumulation rate of its net monthly operating cash flows to 20% from 15% previously, provide additional protection to Sukukholders. VCSB met its second serial redemption of the Sukuk Musyarakah made due on December 23, 2008 of only RM15 million, following the early redemption of RM10 million in July 2007.

The stable rating outlook reflects MARC’s view of Vastalux’s healthy order book position and low contract performance risk with respect to its ability to complete and execute the long-term contracts.

Major Rating Factors

Strengths

• Stable and consistent sinking fund build-up derived from payment streams from offtakers with solid credit strength;
• Improved asset-liability profile arising from inclusions of new medium-term contracts from Petronas Carigali Sdn Bhd into the Musyarakah venture; and
• Satisfactory ten-year oilfield services track record.

Risks/ Challenges

• High dependency on Petronas for contracts; and
• Average business and financial risk profile.