CREDIT ANALYSIS REPORT

YINSON HOLDINGS BERHAD - 2021

Report ID 60538900411 Popularity 38 views 6 downloads 
Report Date Nov 2021 Product  
Company / Issuer Yinson Holdings Bhd Sector Infrastructure & Utilities - Others
Price (RM)
Normal: RM500.00        
  Add to Cart
Rationale
Rating action     
MARC has assigned a rating of A+IS to Yinson Holdings Berhad’s (Yinson) RM1.0 billion Islamic Medium-Term Notes Programme. The rating outlook is stable.

Rationale     
The rating incorporates Yinson group’s strong business profile in providing floating, production, storage and offloading vessels (FPSOs) for the upstream oil and gas (O&G) industry. The group has long-term earnings visibility and healthy profit margins from sizeable long-term FPSO contracts. The rating is constrained by the group’s high leverage position and persistent negative free cash flow, mainly because of continued capex for business growth. In addition, the weak-to-moderate credit profile of the charterers of their FPSOs, most of which are national oil companies in emerging countries such as Brazil, Nigeria, Ghana and Vietnam, remains a moderating factor. 

With five FPSOs (another under construction) and one FSO, Yinson can be considered as a large independent global player in this segment. The group’s charter contracts with the aforementioned oil companies are structured to provide steady charter income and typically stretch up to 25 years to fully cover the capital investment in the FPSOs. In the event of a contract termination, the contracts provide for a termination fee to be paid to cover Yinson’s outstanding debt on the FPSOs as well as an equity return. This recourse notwithstanding, Yinson is exposed to the credit profile of the charterers whose repayment capability is susceptible to oil price movements and geopolitical risk. Given that more than half of Yinson’s order book comprises clients with weak-to-moderate credit profiles, the exposure poses repayment risk. The rating agency understands that to date the group has not faced any repayment issues.

Yinson possesses strong technical expertise, initially gained from Norway-based Fred. Olsen Production ASA (FOP) which it fully acquired in 2014. FOP has been involved in the leasing of offshore floating production assets for more than 25 years and since the acquisition, Yinson has rapidly grown its FPSO segment. The group has been able to demonstrate strong capabilities during FPSO project development periods in terms of delivery and costs, and during the operational periods in terms of high FPSO uptime of above 99% in the last five years.

The group’s borrowings have risen by more than threefold to about RM9.0 billion since 2016, in tandem with the increase in charters; the borrowings were mainly incurred to fund the construction of FPSOs and are non-recourse to the holding company. In terms of contingent liabilities, the holding company generally provides a guarantee during the construction period. 

Going forward, borrowings are expected to increase moderately for the construction of a new FPSO, FPSO Anna Nery. The group may also raise new equity to part finance projects to reduce pressure on its leverage position. Gross debt-to-equity (DE) ratio stood at 3.41x (net DE: 2.63x) as at end-July 2021 (1HFY2022) (1HFY2021: 3.54x, 2.29x). Excluding the non-recourse financing, Yinson’s DE ratio stood lower at 1.78x as at end-July 2021. The DE ratio will be lower when the guarantee on financing for FPSO Anna Nery is released upon final acceptance of the FPSO by June 2023. At the holding company level, gross DE ratio stood at 1.13x as at end-Jan 2021.

Cash flow from operations (CFO) remains healthy, registering RM1.6 billion in FY2021 (FY2020: RM917.4 million) and providing an interest cover of 3.19x. Free cash flow (FCF) remained negative at RM1.1 billion (FY2020: RM406.1 million) due to capex incurred for the construction of FPSO Anna Nery. 

Yinson registered revenue of RM1.5 billion (excluding a one-off revenue recognition from lease commencement of FPSO Abigail Joseph) and pre-tax profit of RM580 million in FY2021. Its pre-tax profit margin was a strong 39.9%. Going forward, the deployment of FPSO Anna Nery in Brazil in 2Q2023 will provide a boost to revenue growth that will offset the revenue losses from three expiring FPSO charter contracts over the next three years. Revenue would also be supported by Yinson’s recent ventures into renewable energy, particularly in India where it acquired a substantial stake in Rising Sun Energy Private Limited (RSE), which has an ongoing 140MW solar power plant (SPP) and a 190MW SPP in development. Yinson established a division in September 2020 to focus on further investments in green technologies.

Rating outlook     
The stable rating outlook reflects our expectation that the group will maintain its business and credit profiles that are broadly in line with the rating band over the next 12 months.

Rating trajectory

Upside scenario     
Any rating upgrade will be premised on an improvement in its credit profile, in particular its borrowings levels such that its recourse DE ratio is below 0.7x and CFO debt and interest coverages are consistently above 0.2x and 3.0x. 

Downside scenario     
Rating pressure would arise if its financial metrics deteriorate from weak project execution, operational issues or counterparty defaults.

Key strengths
Established market position in FPSO segment 
Recurring revenue streams backed by long-term FPSO charter contracts 
Strong operational track record

Key risks
Weak-to-moderate credit profile of charterers
Increased leverage position


Related