MARC Ratings has affirmed its A+_IS rating on Yinson Holdings Berhad’s RM1.0 billion Islamic Medium-Term Notes (IMTN) Programme (Senior Sukuk). Concurrently, the rating agency has also affirmed its A-_IS rating on the group’s RM1.0 billion Subordinated Perpetual Islamic Notes Programme (Perpetual Sukuk). The two-notch rating differential between the instruments is in line with MARC Ratings’ notching principles for subordinated debt and hybrid securities. The outlook on all ratings is stable.

The senior rating affirmation continues to reflect Yinson’s healthy profit margins, and long-term earnings visibility from sizeable charter contracts for providing floating, production, storage and offloading (FPSO) vessels. The rating also factors in Yinson’s established track record in the FPSO industry which has enabled them to build a sizeable portfolio. These strengths notwithstanding, the weak-to-moderate risk profile of counterparties, and the capital-intensive nature of the FPSO business that has led to growing borrowings remain key moderating factors of the rating. 

MARC Ratings understands that total borrowings will increase to around RM22.8 billion in the financial year ending January 2025 (FY2025), from RM18.0 billion as at end-FY2024. The increase in borrowings will mainly fund the remaining construction of FPSO Maria Quitéria and FPSO Agogo. Borrowings had also increased from earlier projections in part due to the weakening ringgit, as most of Yinson’s borrowings are denominated in US dollar. MARC Ratings notes, however, that Yinson’s principally USD-denominated revenue provides a natural hedge for USD debt service, mitigating currency risk. 

Yinson’s projected gross recourse debt-to-equity (DE) ratio of around 2.1x for FY2025 (FY2024: 1.6x) is expected to be temporary, and would ease to around 1.5x after FPSO Maria Quitéria becomes operational in October 2024. This would lead to Yinson’s guarantee of around RM4.5 billion on this FPSO’s loans being released in FY2026. MARC Ratings also expects the group to adhere to a recourse DE level of around 1.5x going forward. Failing to do so could place the ratings under pressure. The rating agency understands that the group may consider raising equity instruments to alleviate leverage pressure on its balance sheet.

Yinson’s order book stood at USD22.5 billion as at end-January 2024, with the main exposure (60%) in Brazil. The rating agency notes that its nine FPSO/floating, storage and offloading (FSO) charter contracts provide long-term earnings visibility (average tenure: 15.4 years). Yinson’s earnings profile benefits from stable charter income, driven by the strong operating performance of the FPSOs with a near 100% technical uptime. 

Group financial performance was well within expectations for FY2024. Recurring revenue (excluding construction revenue) rose 22.9% y-o-y to RM1.0 billion, supported by a full year’s contribution from FPSO Anna Nery. Operating profit margins remained strong, with FPSO margins standing at 57.7%. Pre-tax profit increased by 98.2%, supported by construction profit recognised for FPSO Atlanta, FPSO Maria Quitéria and FPSO Agogo. Cash flow from operations (CFO) was also higher at RM3.1 billion on improved revenue and profit.

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 2024 are: (1) outstanding perpetual securities amounting to RM1.6 billion issued at the holding company level as well as at two special purpose vehicles (SPV); (2) term loans and revolving credit amounting to RM2.9 billion; and (3) RM1.0 billion under the IMTN sukuk programme. Near-term obligations (excluding perpetuals and revolving credit) remain manageable at around RM483.2 million. 

The stable outlook reflects MARC Ratings’ expectation that the group will maintain its business and credit profiles to be broadly in line with the rating band over the next 12 months. 

No rating upside is envisaged in the near term as the company is still in its growth phase, with potential to increase 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 the recourse DE ratio is below 0.7x and debt-to-OPBITDA ratio is below 4.0x on a sustained basis.  

The ratings could come under pressure if Yinson’s recourse DE ratio does not return to 1.5x by FY2026 without adequate mitigating measures in place. Rating pressure would also arise if earnings prospects materially weaken and/or there is a sudden deterioration in the credit profile of the counterparties that would impact the timing of lease payments.