YINSON HOLDINGS BERHAD - 2022 |
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| Report ID | 6053890046804 | Popularity | 557 views 75 downloads | |||||
| Report Date | Jun 2022 | Product | ||||||
| Company / Issuer | Yinson Holdings Bhd | Sector | Infrastructure & Utilities - Others | |||||
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| Rationale |
Rating action MARC Ratings has affirmed its A+IS rating on Yinson Holdings Berhad’s RM1.0 billion Islamic Medium-Term Notes (IMTN) Programme. The rating outlook is stable. Rationale The affirmed rating reflects Yinson group’s established position in the floating, production, storage and offloading vessels (FPSOs) business segment, as well as its earnings visibility from, and healthy profit margins on, long-term FPSO contracts. The rating is mainly constrained by the group’s high borrowings levels, both at group and holding company levels, that are in line with the growth in FPSO contracts and reflect the highly capital-intensive nature of its business. The rating agency notes that while a sizeable proportion of borrowings are at subsidiary levels and are non-recourse project financing, the increase in recourse borrowings at the holding company level is a rating concern. In affirming the rating, MARC Ratings has considered the expected easing of the strain on Yinson’s capital structure from an impending rights issuance, with projected recourse gross and net debt-to-equity (DE) ratios as at end-January 2023 improving to 1.77x and 1.24x (end-January 2022: 2.28x and 1.76x). Yinson is increasing its FPSO fleet to seven vessels with two still under construction, which will further strengthen its position as one of the largest independent global players. It also has one FSO. The FPSOs include FPSO Anna Nery, expected to be deployed by 1Q2023 and FPSO Maria Quiteria, secured in financial year ending January 31, 2022 (FY2022) and expected to be deployed in 4Q2024. Yinson has also secured an engineering, procurement, construction and installation (EPCI) contract for FPSO Atlanta under which it has a call option to fully acquire the project company prior to construction completion in 1H2024. The existing charter contracts (including FPSO Maria Quiteria) with an average tenure of 13.2 years provide Yinson with long-term earnings visibility. MARC Ratings notes that the charter income stability is backed by the FPSOs’ strong operating performance with a technical uptime of close to 100% in FY2022. This notwithstanding, the weak-to-moderate credit profiles of the FPSO charterers — most of which are national oil companies in emerging countries such as Brazil (which accounted for two-thirds of Yinson’s order book of US$15.3 billion), Nigeria and Vietnam — pose counterparty risks. The rating agency understands that as at date, payments have been timely. For FY2022, Yinson recorded consolidated revenue (excluding construction revenue) of about RM1.4 billion and pre-tax profit of RM716.0 million, relatively unchanged from FY2021 given the recurrent nature of its revenue stream. Adjusted pre-tax profit margin remained strong at 51.1% while cash flow from operations (CFO) stood at a healthy RM1.1 billion. Given the borrowings increase (including perpetuals) to RM10.6 billion (FY2021: RM8.0 billion), CFO interest coverage, however, has weakened to 2.75x from 2.89x. The rise in borrowings was mainly for the conversion of FPSO Anna Nery. An additional RM2.5 billion is anticipated in FY2023 to further fund conversion of FPSO Anna Nery and undertake conversion of FPSO Maria Quiteria. Proceeds from a planned RM1.1 billion to RM1.2 billion rights issue exercise by end-June 2022 will defray capex requirements for FPSO Maria Quiteria. At the company level, Yinson relies on residual cash flows in the form of dividends from subsidiaries and joint ventures. It received lower dividend income of RM171.7 million in FY2022 (FY2021: RM360.0 million) due to internal reorganisation of subsidiaries previously owned directly by the holding company, and from allocating its free cash towards new projects. Its key financial obligations are perpetual securities amounting to RM1.8 billion, term loans of RM1.2 billion by its treasury entity, as well as RM1.0 billion under the IMTN programme. Yinson’s upcoming perpetual redemption of RM423.0 million in October 2022 may be funded by dividend cash flows from subsidiaries as well as existing cash balances at holding company of RM335.4 million as at end-March 2022. Rating outlook The stable rating outlook reflects our expectation that the group will successfully conduct its planned rights issuance in 2Q2022, as well as 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 borrowing levels such that recourse company DE ratio is below 0.7x and CFO interest coverages are consistently above 3.0x. Downside scenario Rating pressure would arise if its financial metrics weaken sharply due to rapid expansion, heightened project and operational issues or counterparty defaults. Key strengths • Established market position in FPSO segment • Rising recurring revenue streams backed by long-term FPSO charter contracts • Strong operational track record Key risks • High leverage at holding company level • Weak-to-moderate credit profile of charterers |
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