Oilcorp Bhd - 2009 Credit Commentary Report

MARC has downgraded its ratings on Oilcorp Berhad’s (Oilcorp) RM70 million Murabahah Underwritten Notes Issuance Facility/Islamic Medium Term Notes Facility (MUNIF/IMTN) to MARC-4ID /CID from MARC-4ID /BBID, and maintains the ratings on MARCWatch Negative. The ratings were lowered in expectation of imminent default by Oilcorp on its upcoming redemption of its MUNIF/IMTN on October 7, 2009 under the facility’s original redemption schedule. The ratings incorporate Oilcorp’s recent failure to make its September 17, 2009 interest payment on a loan under a CLO programme.

Oilcorp is principally an investment holding company with three main core businesses, i.e. oil and gas and engineering, property investments and deep-sea fishing.

Oilcorp had earlier identified certain receivables, primarily arising from variation orders from oil and gas majors, as the funding source for the balance RM10 million it needs to raise, in order to meet its upcoming RM20 million redemption in October. Little or no progress had been made in collecting the receivables, prompting Oilcorp to seek indulgence of up to three months to January 7, 2010 for the redemption due in October from its sole bondholder. In line with MARC’s rating approach, any failure by Oilcorp to meet its obligations in accordance with its original terms will be regarded as a default.

The issuer has defaulted on interest payments due to EON Bank Berhad’s CapOne CLO amounting to RM1.6 million due on September 17, 2009. The missed interest payment could lead to a declaration of an event of default, which could potentially result in an acceleration of the entire loan principal of RM45 million. Oilcorp has requested for a deferral of the interest payment up to one month to October 17, 2009 but this request has not been granted yet. Oilcorp is currently an affected issuer under PN17 of Bursa Malaysia’s listing requirements and has yet to formulate a regularisation plan. MARC believes that under the circumstances, the default of the MUNIF/IMTN appears imminent.

The maintenance of MARCWatch Negative indicates that the current ratings will be lowered to DID upon confirmation of Oilcorp’s failure to meet the redemption due on October 7, 2009.