Thursday, Aug 22, 2002
Malaysian Rating Corporation Berhad (MARC) has assigned a long term rating of AA ID (Double A flat Islamic Debt) and A+ ID (Single A plus Islamic Debt) in respect of MHS Aviation Berhad’s (MHSA) (formerly known as MHS Aviation Sdn Bhd) proposed RM60 million Al-Bai Bithaman Ajil Islamic Debt Securities (BaIDS) and RM140 million Nominal Value Junior Notes Issue (JNs) respectively. The rating of the BaIDS mainly reflects the company’s continued dominant position in the provision of aviation services to the oil and gas industry; the long term contracts secured with major oil companies; the credit support provided by the subordination of the JNs; increasing profitability and cash flow protection measures and improving capital structure. The rating of the JNs addresses the timeliness of its redemption on the put and call option date incorporated in the issue structure. Proceeds from the BaIDS and JNs will be primarily used to refinance the company’s existing borrowings including the existing Guaranteed Revolving Underwritten Facility and consequently reposition its balance sheet.
MHSA occupies a dominant position in the provision of contracted helicopter air transportation services to oil and gas companies for transporting personnel and equipment to offshore oilrigs and platforms. Over 70% of revenue are secured by long-term contracts entered into with PETRONAS Carigali Sdn Bhd, ExxonMobil Exploration and Production Malaysia Inc. and Sarawak Shell Sdn Bhd; introducing an element of stability to MHSA’s revenue stream. The long term contracts have a minimum tenure of five years and a maximum of 10 years, most of which will expire in 2008. Shorter-term contracts mainly cover exploratory activities. Fiscal year 2001 saw revenue rising 24% to RM169.8 million mainly due to increased monthly standing charges and higher contribution from new contracts.
MHSA’s operating environment is dependent on the performance of the oil and gas industry. Investments in the petroleum industry are expected to continue growing in the near to medium term. Production of natural gas will be driven by higher domestic demand, particularly from the power generation sub-sector.
The operating environment is also characterized by the high capital expenditure, demands for high safety standards and specific helicopter/aircraft requirements by clients. Competition is, thus, limited, if any. MHSA’s excellent safety record is evident from the over 220,000 hours of fatality-free flying since its inception in 1992 to-date. Whilst the group’s operations are predominantly in the domestic market, it also provides aviation services to the Greater Nile Petroleum Operating Company in Sudan.
The two notch rating distinction between the BaIDS and the JNs reflect the subordinated status of the JNs vis-à-vis the BaIDS in terms of the security package and payment structure as well as the put and call option under the terms of the JNs. The BaIDS are secured by a first charge and assignment over all existing service contract proceeds; providing a security cover of over 14 times. Redemption of the JNs will only commence after the full redemption of the BaIDS, lending support to the rating of the BaIDS and mitigating the risk of cross default. A put and call option incorporated in the JNs’ issue structure will have the effect of accelerating the redemption of the JNs to year 2009, the exercise date of the option. The pre-funding and maintenance of a reserve sum of RM10 million in the Sinking Fund Account to cover principal repayments, coupled with the six-months profit reserve will help to mitigate liquidity risk.
Operating profit margin continued on an upward trend, reaching 20.6% in fiscal year 2001. And with the continued decline in interest expense, MHSA recorded a 63.3% growth in pre-tax profit to RM28.5 million in the recent fiscal year. The retention of profits in the company boosted shareholders’ funds to RM98.9 million from RM80.6 million previously. MHSA’s debt servicing capacity is expected to be further enhanced with increased revenue from present and future contracts, while costs are expected to remain relatively stable.
MHSA occupies a dominant position in the provision of contracted helicopter air transportation services to oil and gas companies for transporting personnel and equipment to offshore oilrigs and platforms. Over 70% of revenue are secured by long-term contracts entered into with PETRONAS Carigali Sdn Bhd, ExxonMobil Exploration and Production Malaysia Inc. and Sarawak Shell Sdn Bhd; introducing an element of stability to MHSA’s revenue stream. The long term contracts have a minimum tenure of five years and a maximum of 10 years, most of which will expire in 2008. Shorter-term contracts mainly cover exploratory activities. Fiscal year 2001 saw revenue rising 24% to RM169.8 million mainly due to increased monthly standing charges and higher contribution from new contracts.
MHSA’s operating environment is dependent on the performance of the oil and gas industry. Investments in the petroleum industry are expected to continue growing in the near to medium term. Production of natural gas will be driven by higher domestic demand, particularly from the power generation sub-sector.
The operating environment is also characterized by the high capital expenditure, demands for high safety standards and specific helicopter/aircraft requirements by clients. Competition is, thus, limited, if any. MHSA’s excellent safety record is evident from the over 220,000 hours of fatality-free flying since its inception in 1992 to-date. Whilst the group’s operations are predominantly in the domestic market, it also provides aviation services to the Greater Nile Petroleum Operating Company in Sudan.
The two notch rating distinction between the BaIDS and the JNs reflect the subordinated status of the JNs vis-à-vis the BaIDS in terms of the security package and payment structure as well as the put and call option under the terms of the JNs. The BaIDS are secured by a first charge and assignment over all existing service contract proceeds; providing a security cover of over 14 times. Redemption of the JNs will only commence after the full redemption of the BaIDS, lending support to the rating of the BaIDS and mitigating the risk of cross default. A put and call option incorporated in the JNs’ issue structure will have the effect of accelerating the redemption of the JNs to year 2009, the exercise date of the option. The pre-funding and maintenance of a reserve sum of RM10 million in the Sinking Fund Account to cover principal repayments, coupled with the six-months profit reserve will help to mitigate liquidity risk.
Operating profit margin continued on an upward trend, reaching 20.6% in fiscal year 2001. And with the continued decline in interest expense, MHSA recorded a 63.3% growth in pre-tax profit to RM28.5 million in the recent fiscal year. The retention of profits in the company boosted shareholders’ funds to RM98.9 million from RM80.6 million previously. MHSA’s debt servicing capacity is expected to be further enhanced with increased revenue from present and future contracts, while costs are expected to remain relatively stable.