Wednesday, Nov 07, 2007
MARC has reaffirmed its A+ID rating of MHS Aviation Berhad’s (MHSA) RM140 million Junior Notes Issue (JNs). The rating outlook is developing. The rating reflects MHSA’s position as the only licensed provider of offshore oil and gas helicopter support services in Malaysia. The rating recognises that despite MHSA’s declining profitability since 2003, its debt protection measures and balance sheet liquidity have remained strong. The developing outlook reflects anticipated changes in MHSA’s business and financial profile resulting from a restructuring exercise involving MHSA and related entities. The exercise, which is likely to be accompanied by a refinancing of MHSA’s existing debt, will see the separation of aircraft ownership from operation and maintenance, and MHSA assuming the role of aircraft operator.
MHSA presently provides helicopter services to the domestic oil and gas (O&G) industry on long-term contract as well as on ad hoc or spot basis. As of October 2007, MHSA’s fleet comprised 12 helicopters. In addition to its own aircraft, MHSA also leases a total of 19 helicopters from related entities and third parties. Out of the 19 leased aircraft, 9 were leased from its related entities. MHSA’s long-term contracts with ExxonMobil Exploration & Production Malaysia Inc, Sarawak Shell Sdn Bhd and PETRONAS Carigali Sdn Bhd afford relatively good revenue and cash flow visibility. More than 60% of its total revenue is generated from long term contracts with the three O&G companies. Although long term contracts with the two O&G companies will be up for renewal in 2008, MARC believes that non-renewal risk is sufficiently mitigated by MHSA’s reliable track record, monopolistic position and established long-term client relationships. Extended high oil prices as well as the ongoing ramp up in offshore O&G activity and expenditure should continue to drive revenue growth at MHSA.
Almost two thirds of MHSA’s revenue is derived from fixed monthly standing charges, mitigating potential fluctuations in flying hours. Despite a 48% increase in revenue, profitability has been on a declining trend for past three consecutive years due to escalating aircraft lease payments. Notwithstanding MHSA’s declining margins, its debt servicing capacity remains strong, and liquidity is ample, supported by RM67.5 million cash in designated accounts. MARC expects MHSA’s financial profile to improve following the completion of the proposed restructuring exercise.
November 7, 2007
MHSA presently provides helicopter services to the domestic oil and gas (O&G) industry on long-term contract as well as on ad hoc or spot basis. As of October 2007, MHSA’s fleet comprised 12 helicopters. In addition to its own aircraft, MHSA also leases a total of 19 helicopters from related entities and third parties. Out of the 19 leased aircraft, 9 were leased from its related entities. MHSA’s long-term contracts with ExxonMobil Exploration & Production Malaysia Inc, Sarawak Shell Sdn Bhd and PETRONAS Carigali Sdn Bhd afford relatively good revenue and cash flow visibility. More than 60% of its total revenue is generated from long term contracts with the three O&G companies. Although long term contracts with the two O&G companies will be up for renewal in 2008, MARC believes that non-renewal risk is sufficiently mitigated by MHSA’s reliable track record, monopolistic position and established long-term client relationships. Extended high oil prices as well as the ongoing ramp up in offshore O&G activity and expenditure should continue to drive revenue growth at MHSA.
Almost two thirds of MHSA’s revenue is derived from fixed monthly standing charges, mitigating potential fluctuations in flying hours. Despite a 48% increase in revenue, profitability has been on a declining trend for past three consecutive years due to escalating aircraft lease payments. Notwithstanding MHSA’s declining margins, its debt servicing capacity remains strong, and liquidity is ample, supported by RM67.5 million cash in designated accounts. MARC expects MHSA’s financial profile to improve following the completion of the proposed restructuring exercise.
November 7, 2007