MARC has affirmed 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 with stable outlook.  The rating assignment reflects the strong credit risk of the offtaker, PETRONAS Carigali Sdn Bhd (PCSB); protective issue structure which mitigates the 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 and current contracts with the oil and gas service providers as well as the oil and gas companies; and performance risk of the contracts with PCSB which is deemed manageable.  The rating is, however, moderated by the financial position of Vastalux being relatively smaller than some of the 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. undertaking the Top-Side Major Maintenance (TMM) and Hook-Up and Commissioning (HUC) contracts entered into between Vastalux and 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).  In March 2005, Vastalux was awarded a TMM contract from PCSB for a period of five years (2005 – 2010) with estimated contract value of RM400.0 million; and a HUC contract for a period of three years (2005 – 2007) with an estimated contract value of RM180.0 million. The HUC contract may be extended for another two years (i.e: up to 2010) 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 onshore topside minor 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 production sharing contract (PSC) contractors, such as PCSB.  Under the transaction, the Musyarakah was entered into between the 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 is made directly into Vastalux’s Proceeds Account which is 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 the payment priority given to the 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 the 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 projection, VCSB’s DSCR is relatively comfortable with minimum and average DSCR at 1.88 and 2.84 times respectively, assuming that the HUC contract is up to only three years.  Based on various stress testing performed by MARC, the cashflow appears to be fairly resilient to delays in collections but more susceptible to increases in project material costs (on lump sum and unit rate basis) with lowest DSCR recorded at 1.32 times. 

Vastalux’s revenue has recorded commendable growth with average year-on-year growth of 58.5% since FY2002 to approximately RM44.0 million in FY2004 and continued its growth to achieve revenue of RM77.3 million in FY2005 as Vastalux’s position improves from being a sub-contractor to that of a main contractor.  Revenue recorded for the 10 months period grew further to RM116.7 million, with a higher operating margin of 14.8%.