Bayu Padu Sdn Bhd - 2008/2009

MARC has affirmed its ratings on Bayu Padu Sdn Bhd’s (Bayu Padu) RM500 million Istisna’ Serial Bonds (Istisna’ Bonds) and RM100 million Murabahah Commercial Papers/ Medium Term Notes (MCP/MMTN) at A+ID and MARC-1ID/A+ID respectively. The outlook on the ratings is stable. A wholly-owned funding vehicle of SapuraCrest Petroleum Berhad (SapuraCrest), Bayu Padu’s debt is ultimately supported by cash flow generated by SapuraCrest’s operating subsidiaries. Accordingly, the affirmed ratings fundamentally reflects the improved business and financial profile of the SapuraCrest Group resulting from its active order book replenishment as well as new projects awarded to 50:50 joint venture entity, SapuraAcergy Sdn Bhd, on the strength of Sapura 3000, a heavy lift and pipelay vessel which has deepwater construction capabilities. A continuing rating concern is if the group enters a debt funded asset expansion programme, this could raise consolidated debt leverage and limit its free cash flow from operations.

SapuraCrest’s income is derived from four business segments: installation of pipeline and facilities (IPF), offshore drilling, marine services and operations & maintenance (O&M). SapuraCrest’s IPF and offshore drilling businesses, the core strengths of the group, collectively contributed 80% to revenue in fiscal 2009. The group’s strong market position in the domestic and, to some extent, the regional oil and gas support services industry is evidenced by its continued ability to secure new as well as renew contracts from oil majors such as Royal Dutch Shell group, Petroliam Nasional Berhad group and Murphy Oil Company.

Based on its audited results for FY2009, revenue surpassed the RM3.0 billion mark on account of strong growth recorded by its IPF, offshore drilling and marine services divisions. The group’s pre-tax profit rose to RM281.6 million, of which profit attributable to shareholders was RM115.8 million, while its operating margin was at a relatively similar level as the previous year at 11.1% (FY2008: 11.7%).  Despite the lower margins recorded in IPF in FY2009 against FY2008, offshore drilling margins showed an improvement leading to relatively stable margins for financial year ended January 31, 2009.

The group’s debt-equity (D/E) ratio declined significantly to 1.0 time in FY2008 upon full conversion of its USD80 million convertible bonds into new ordinary shares. As at end-January 2009, its D/E ratio declined further to 0.7 times following reduced debt levels and its larger equity base with the retention of FY2009 earnings. Its D/E ratio which includes off-balance sheet liabilities is estimated at 0.8 times, below the maximum limit of 3.0 times under the Istisna’ bonds and MCP/MMTN issuance. In the event the group embarks on debt-funded asset acquisitions, coupled with increasing working capital lines to support the implementation of its existing contracts, further improvement in its gearing will be restricted.  As Bayu Padu is a special purpose vehicle, in the event of default by any of SapuraCrest’s operating subsidiaries, the secured debts at operating subsidiaries level will take precedent over Bayu Padu’s noteholders. 

SapuraCrest’s current growth is focused on expanding its marine services division through new vessels and equipment acquisition. MARC views SapuraCrest’s growth strategy as aggressive, with committed capital spending on new vessels projected to be in the range of RM200 million within the next two years, to be financed largely by debt. MARC expects SapuraCrest to maintain sufficient financial flexibility at all times, including prudent and timely refinancing of debt maturities throughout the group.

The stable outlook on the ratings reflects MARC’s expectations that SapuraCrest’s profitability will be resilient and its credit metrics will be maintained at levels appropriate for the current rating. 

Major Rating Factors

Strengths

• One of the largest domestic oil and gas integrated service providers with a niche in deepwater offshore construction;
• Asset ownership allows better control over mobilisation of its resources and reduces reliance on third party charters; and
• Improved profitability arising from revised terms on certain contracts, including pass through of operating costs and stand-by costs due to weather down time.

Challenges/Risks