Monday, Dec 12, 2005
MARC has assigned a rating of AA-IS to Vastalux Capital Sdn Bhd’s (VCSB) Islamic Securities under the principle of Musyarakah Mutanaqisah (Sukuk Musyarakah) of RM100.0 million. The rating assignment reflects the strong credit risk of the offtaker, Petronas Carigali Sdn Bhd (PCSB); protective issue structure which mitigates risk of commingling of funds from two main contracts with PCSB with the other funds of Vastalux Sdn Bhd (Vastalux); the reliability of Vastalux in performing its obligations in its past contracts with oil and gas service providers as well as oil and gas companies; and performance risk of the contracts with PCSB which are deemed manageable. The rating is, however, moderated by the financial position of Vastalux being relatively smaller than some of its more established oil and gas service providers.
VCSB is a special purpose company and a wholly owned subsidiary of Vastalux, incorporated for the purpose of providing financing to Vastalux with respect to the agreed scope of investment via a Musyarakah Venture arrangement i.e. to undertake the Top-Side Major Maintenance (TMM) and Hook-Up and Commissioning (HUC) contracts entered into between Vastalux and Petronas Carigali Sdn Bhd (PCSB) and the provision of minor fabrication works for the West Patricia Project contract entered into between Vastalux and Murphy Sarawak Oil Co. Ltd (Murphy).
On 16 March 2005, Vastalux had been awarded a TMM and a HUC contract from PCSB for an estimated total combined value of RM580.0 million. The TMM contract is for a period of five years whilst the HUC contract is a three-year contract which may be extended for another two years with renewal to be exercised at the end of the third and fourth years.
Vastalux’s business has mainly been focused on the upstream sector of the oil and gas industry which extends into offshore topside fabrication, hook-up and commissioning and topside major maintenance works. For the five years up until 2003, Vastalux had completed close to RM47.0 million worth of contracts. The company has managed to improve its position from being a sub-contractor to the oil and gas service providers to securing contracts directly from oil and gas companies, namely, PCSB.
Under the proposed transaction, the Musyarakah venture will be entered into between the potential Sukuk investors with VCSB assuming the role of an agent (wakil) acting on behalf of Sukuk investors primarily to receive investors’ capital contribution and to invest on their behalf in the identified contracts. Payments from PCSB will be made directly into Vastalux’s Proceeds Account which are immediately swept into VCSB’s revenue accounts to ensure that there is no commingling risk with Vastalux’s other contracts. The sukuk investors also benefit from payment priority given to profit and capital repayment of the Sukuk Musyarakah over operating expenses in relation to the contracts.
Liquidity risk is substantially mitigated with progressive build-up of the sinking fund account which accumulates 15% of net monthly operating cashflow of VCSB up to an amount sufficient to service the next capital repayment of the Sukuk Musyarakah. Based on the cashflow projections, DSCR of VCSB is relatively comfortable with minimum and average DSCR at 1.88 and 2.84 respectively, assuming that the HUC contract is up to only three years.
Revenue and profit before tax of Vastalux has recorded commendable growth with average year-on-year growth of 58.5% since FY2002 to approximately RM44.0 million in FY2004 as Vastalux’s position improves from being a sub-contractor to that of a main contractor. Operating margin has been improving at 10.8% recorded for FY 2004 and 11.8% for the first six months ended 30 June 2005. Nevertheless, Vastalux is still relatively smaller than some of its more established competitors, thus encountering intense competition when tendering for work orders, particularly for HUC contracts.
VCSB is a special purpose company and a wholly owned subsidiary of Vastalux, incorporated for the purpose of providing financing to Vastalux with respect to the agreed scope of investment via a Musyarakah Venture arrangement i.e. to undertake the Top-Side Major Maintenance (TMM) and Hook-Up and Commissioning (HUC) contracts entered into between Vastalux and Petronas Carigali Sdn Bhd (PCSB) and the provision of minor fabrication works for the West Patricia Project contract entered into between Vastalux and Murphy Sarawak Oil Co. Ltd (Murphy).
On 16 March 2005, Vastalux had been awarded a TMM and a HUC contract from PCSB for an estimated total combined value of RM580.0 million. The TMM contract is for a period of five years whilst the HUC contract is a three-year contract which may be extended for another two years with renewal to be exercised at the end of the third and fourth years.
Vastalux’s business has mainly been focused on the upstream sector of the oil and gas industry which extends into offshore topside fabrication, hook-up and commissioning and topside major maintenance works. For the five years up until 2003, Vastalux had completed close to RM47.0 million worth of contracts. The company has managed to improve its position from being a sub-contractor to the oil and gas service providers to securing contracts directly from oil and gas companies, namely, PCSB.
Under the proposed transaction, the Musyarakah venture will be entered into between the potential Sukuk investors with VCSB assuming the role of an agent (wakil) acting on behalf of Sukuk investors primarily to receive investors’ capital contribution and to invest on their behalf in the identified contracts. Payments from PCSB will be made directly into Vastalux’s Proceeds Account which are immediately swept into VCSB’s revenue accounts to ensure that there is no commingling risk with Vastalux’s other contracts. The sukuk investors also benefit from payment priority given to profit and capital repayment of the Sukuk Musyarakah over operating expenses in relation to the contracts.
Liquidity risk is substantially mitigated with progressive build-up of the sinking fund account which accumulates 15% of net monthly operating cashflow of VCSB up to an amount sufficient to service the next capital repayment of the Sukuk Musyarakah. Based on the cashflow projections, DSCR of VCSB is relatively comfortable with minimum and average DSCR at 1.88 and 2.84 respectively, assuming that the HUC contract is up to only three years.
Revenue and profit before tax of Vastalux has recorded commendable growth with average year-on-year growth of 58.5% since FY2002 to approximately RM44.0 million in FY2004 as Vastalux’s position improves from being a sub-contractor to that of a main contractor. Operating margin has been improving at 10.8% recorded for FY 2004 and 11.8% for the first six months ended 30 June 2005. Nevertheless, Vastalux is still relatively smaller than some of its more established competitors, thus encountering intense competition when tendering for work orders, particularly for HUC contracts.