MARC has downgraded its ratings on Oilcorp Berhad’s (Oilcorp) RM70 million Murabahah Underwritten Notes Issuance Facility/ Islamic Medium Term Notes Facility (MUNIF/IMTN) to MARC-4ID/BBID from MARC-2ID/A-ID, and maintains the ratings on MARCWatch Negative, where it has been since May 22, 2008. The ratings were lowered due to the company’s liquidity position which had deteriorated further since MARC’s previous rating action, and incorporate Oilcorp’s increasingly limited options to stabilise its credit profile. Oilcorp failed to deposit RM10 million into the facility’s sinking fund account that was due on September 7, 2009 which represents the balance of an upcoming RM20 million redemption due on October 7, 2009 (the October redemption).

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

Oilcorp had earlier identified certain receivables, primarily arising from variation orders, as the payment source for its September sinking fund payment and redemption in the following month. However, the group has failed to make any notable progress on collection of its stagnant receivables amounting to RM347.8 million in the first six months of 2009, and its receivables turnover increased to 567 days. MARC notes with concern that Oilcorp has no other sources of potential liquidity apart from its outstanding receivables that it may rely on to meet the upcoming obligation.

While Oilcorp has obtained an extension for the sinking fund payment from its sole bondholder, its missed sinking fund payment and depleting liquidity indicates a heightened default risk with regards to Oilcorp’s October redemption. Oilcorp registered an unaudited loss before tax of RM0.5 million for the first half of 2009 (1H2009) on the back of falling revenue. Net cashflow from operating activities during the period was negative RM20.7 million.

The MARCWatch Negative incorporates the possibility of a further downgrade if Oilcorp is not able to find alternative sources for repayment, closer to the deadline to meet its October redemption.

Contacts:
Anandakumar Jegarasasingam 03-20902250/ kumar@marc.com.my;
Eric Chua 03-20902245/ cheekiong@marc.com.my