MARC has affirmed the ratings of MARC-2ID/A- ID on Oilcorp Berhad’s (Oilcorp or the Group) RM70.0 million Murabahah Underwritten Notes Issuance Facility/Islamic Medium-Term Notes Facility (MUNIF/IMTN). The outlook on the ratings is stable. The affirmed ratings reflect the Group’s average business profile underscored by its continuous dependence on the oil and gas sector which saw its order book more than double during the period under review. The ratings are however moderated by the strain on its liquidity arising from negative operating cash flows over the last four years; arising from a prolonged delay with respect to its Middle East project. Nevertheless, MARC draws comfort from the measures Oilcorp is taking to mitigate non-payment or termination risk by the project owner. The stable outlook reflects MARC’s expectations that Oilcorp’s oil and gas division would sustain both its profit and revenue growth, albeit at a slower pace.

Oilcorp’s involvement in the oil and gas, property investment and deep-sea fishing businesses provide modest revenue diversification. Its oil and gas division, offering integrated engineering, procurement and construction services, contributes more than 80% to group revenues. Among Oilcorp’s largest job to-date is the RM290 million contract for the engineering, procurement, construction and commissioning (EPCC) of four wellhead platforms for Carigali-PTTEPI Operating Company Sdn Bhd which commenced in July 2007. Based on unaudited results for FY2007, revenue and pre-tax profit stood at RM457.0 million and RM22.6 million respectively. As of September 2007, the Group recorded RM1.0 billion worth of jobs outstanding and had tendered for more than RM401.0 million worth of contracts.  

Oilcorp’s other revenue source is derived from its property investment division, in respect of which lease rentals from the D’Tiara Beach Resort in Port Dickson have been the principal contributors. Its deep-sea fishing division has yet to contribute positively to group revenues as a result of operational delays.

Historically, Oilcorp has been relying on a combination of debt and fresh equity injection to meet its operational needs as reflected in its cash flow from financing. The three private placement exercises carried out over the last two years, to fund the Group’s working capital needs demonstrate shareholders’ continued support for the Group. 

Oilcorp’s debt to equity level stood at 1.4 times as of FY2007, which was within the covenant of 2.5 times under the terms of the MUNIF/IMTN.

Moving forward, the Group needs to demonstrate improvement in its cash flow metrics to maintain its current credit rating. Oilcorp’s liquidity position could improve on account of a compensation should the outcome of its legal action against the equipment supplier in relation to its Middle East project prove favourable. On the other hand, the pressure for downward rating adjustment may gain momentum if Oilcorp continues to face prolonged liquidity constraints as a result of delay in receivables collection.