YINSON HOLDINGS BERHAD - 2023 |
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| Report ID | 60538900469452 | Popularity | 356 views 64 downloads | |||||
| Report Date | Jun 2023 | Product | ||||||
| Company / Issuer | Yinson Holdings Bhd | Sector | Infrastructure & Utilities - Others | |||||
| Price (RM) |
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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 Yinson’s established track record in providing floating, production, storage and offloading vessels (FPSOs) for the oil and gas industry, its strong earnings visibility from sizeable charter contracts, and healthy profit margins remain key drivers for the rating affirmation. The key factors moderating the rating are high borrowings from continued capital requirements to support the growth of its FPSO business, and counterparty risk from charterers with weak to moderate credit profiles. For financial year ended January 2023, group revenue rose 25.8% y-o-y to RM1.8 billion (excluding construction revenue), mainly due to higher charter income from two existing FPSO contracts that are contractually bound to increase charter payments on high oil price during the period. MARC Ratings estimates that recurring revenue base would grow by around RM780.0 million from FY2024 from FPSO Anna Nery, which achieved first oil on May 7, 2023. Following this, Yinson’s operational fleet would increase to five FPSOs and one floating, storage and offloading vessel (FSO). MARC Ratings notes that the group has ongoing construction of three FPSOs – FPSO Atlanta, FPSO Maria Quiteria and FPSO Agogo – the latter of which was secured in February 2023 for a US$5.3 billion contract for engineering, procurement, constructing and commissioning (EPCC) works as well as a 15-year time charter and operations & maintenance (O&M) agreement. This addition brings Yinson’s total number of offshore contracts to eight FPSO/FSO charter contracts and one FPSO EPCC contract. With these projects, Yinson’s order book has expanded to US$20.4 billion. The group is expected to raise around US$878 million in borrowings to fund the construction of FPSO Agogo. Including funding on other ongoing projects, total borrowings are expected to increase to RM17.5 billion by FY2026 from RM11.2 billion as at FY2023. In order to alleviate pressures on its balance sheet, Yinson completed a rights issuance of RM1.2 billion in June 2022, leading to a decline in recourse gross debt-to-equity (DE) to 1.50x in FY2023 from 2.28x in the prior year. While borrowings are expected to increase for its new projects in the near term, the lifting of Yinson’s guarantee on FPSO Anna Nery’s obligations upon deployment would moderate the increase. Pre-tax profit was 18.0% higher y-o-y at RM845.0 million, on the back of the abovementioned increase in recurring revenue as well as recognition of EPCC profit for construction of FPSO Maria Quiteria and FPSO Atlanta. MARC Ratings notes that margins remain strong, with adjusted pre-tax margin (excluding EPCC revenue) standing at 47.9%. Existing charter contracts (including FPSO Agogo) provide long-term earnings visibility (average tenure: 15.7 years). We note that the charter income stability has been backed by the FPSOs’ strong operating performance with a technical uptime consistently close to 100%. This notwithstanding, the weak-to-moderate credit profiles of its FPSO charterers — most of which are national oil companies in emerging countries, where Brazil accounted for 53% of the US$20.4 billion order book — pose counterparty risks. To date, the group has not reported any major issues with payments from its counterparties. Yinson’s cash flow from operations (CFO) remained healthy at RM2.6 billion with CFO interest and debt coverage of 4.29x and 0.18x. We expect new cash flow contribution from FPSO Anna Nery to help maintain coverage levels in the face of rising borrowings. At the company level, Yinson relies on residual cash flows, mainly in the form of dividends from subsidiaries and joint ventures. Its key financial obligations as at end-January 2023 are perpetual securities amounting to RM1.8 billion, term loans and revolving credit of RM1.7 billion, as well as RM1.0 billion under the rated IMTN programme. Yinson established a new RM1.0 billion unrated perpetual sukuk programme in October 2022, of which RM360.0 million has been drawn down to date to refinance existing perpetual debt. The unrated perpetual sukuk qualifies for 50% equity credit based on MARC Ratings’ approach to equity treatment for hybrid securities. Yinson also intends to refinance its existing US$120 million perpetuals with a new perpetual sukuk in 2024 to benefit from equity treatment for hybrid securities. 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 No rating upside is envisaged in the near term given the company remains in the growth phase, with rising borrowing levels. Any rating upgrade in the foreseeable future would 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 issues. Key strengths
Key risks
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