MARC continues to maintain Oilcorp Berhad’s (Oilcorp) MARC-2ID/A-ID ratings on its RM70 million Murabahah Underwritten Notes Issuance Facility/Islamic Medium Term Notes Facility (MUNIF/IMTN) on MARCWatch Negative. The company was first placed on MARCWatch Negative since May 22, 2008, due to a protracted delay in releasing audited accounts for the financial year ended December 31, 2007 (FY2007). Since MARC’s last update of Oilcorp’s MARCWatch status on October 31, 2008, Oilcorp’s financial profile has exhibited signs of deterioration. While its revenue for the nine months ended September 30, 2008 has held up reasonably well at RM262.4 million compared to RM277.1 million for the corresponding period in FY2007, Oilcorp recorded a pre-tax profit of RM2.5 million, 75.9% down from the prior year corresponding period. The group’s cash position and liquidity has also declined as a result of deteriorating cash flow generation. Its net operating cash flow for the nine-month period showed a larger deficit of RM110.5 million compared to the negative RM24.0 million reported for the prior year corresponding period. Oilcorp expects to restore its credit profile and improve its financial performance over the next two quarters by implementing certain operating and financial strategies. Additionally, Oilcorp expects to generate some improvement in its earnings over the next six months by securing new fabrication contracts from oil majors and is actively bidding for new contracts.

Based on Oilcorp’s unaudited balance sheet as at September 30, 2008, the group’s trade receivables and due from customers increased to RM428.3 million (FY2007: 413.9 million), relative to its total revenue of RM262.4 million for the nine months ended September 30, 2008. Its two largest single outstanding receivables are due from Qatar Petroleum (QP) and Renewable Fuel Corporation Inc (RFC). Collection of the QP receivables which was reported as RM45.3 million as at September 30, 2008 is expected by June 2009 upon conclusion of the final negotiations. Oilcorp has also intended to convert RM80 million of the total RFC receivables which stood at RM95.7 million as at September 30, 2008, into convertible preferred stocks of RFC. The latter is undertaking a floatation exercise which will provide Oilcorp with the opportunity to realise the value of the preferred stocks through conversion into common stocks. The proceeds from the divestment of its equity in RFC have been earmarked for repayment of wholly-owned subsidiary, SAP’s RM200 million MUNIF programme, with a current outstanding amount totalling RM77 million. SAP, a special purpose company was formed to securitise receivables from its oil and gas and engineering arm, i.e. Oil-Line Engineering & Associates Sdn Bhd. The remaining amount owing from the US-based integrated biodiesel and blended fuel producer and supplier will remain as receivables to be collected.

Oilcorp is principally an investment holding company with three main core businesses, i.e. oil and gas engineering, property investments and deep-sea fishing.

The ratings could be lowered in the event Oilcorp fails to adequately turn around its financial performance and improve its working capital and liquidity measures over the next two quarters.

Contacts:
Hafizan Haron 03-2090 2238/ hafizan@marc.com.my;
Lee Mei Lin, 03-2090 2259/ meilin@marc.com.my.