MARC has affirmed its rating on Petra Perdana Berhad’s (Petra) RM800 million Dual Currency Revolving Financing Facility at A+ and has revised the outlook on the ratings to stable from developing. The outlook revision reflects the group’s improved debt maturity profile which was the main source of concern during MARC’s previous review. Petra’s rating is supported by the continued performance of its offshore marine vessel (OMV) and integrated brownfield services, its established track record of servicing oil majors and historically strong profitability trend. However, the group’s rating continues to be constrained by its weak liquidity and modest financial flexibility, its high adjusted leverage after taking into account its off-balance sheet financed vessels, exposure to potentially lower vessel utilisation and pricing pressure due to aggressive fleet expansion by OMV operators. Although vessel utilisation declined during the third quarter of 2009, it has since recovered, but any significant deterioration in vessel utilisation of Petra’s vessels, the majority of which are deployed on spot charters, may prompt a downward revision of the outlook and/or rating. 

Petra is principally involved in the provision of offshore marine vessels for the exploration and production activities of oil majors in domestic and regional markets. The group currently operates a fleet of 24 vessels, had accelerated its fleet replacement program in 2007 to replace its aging fleet within three years. Petra’s fleet renewal strategy is centred on anchor handling tug and supply (AHTS) vessels with a capacity of above 10,000 brake horsepower (bhp). The large number of contracts which expired and the slowdown in regional drilling activities have resulted in a sharp decrease in capacity utilisation of its vessels to 53% in the third quarter of the financial year ending December 31, 2009 (3QFY2009) compared to 67% in 1HFY2009. Since then, the company has confirmed that as at November 12, 2009, 75% of its vessels are currently on-charter. However, MARC notes that its relatively high proportion of spot-charters and large number of new deliveries expected over the next six months continues to expose the company to the possibility of lower vessel utilisation and charter rates in the near term. Petra’s fleet, which mostly consists of non-Malaysian flagged vessels, could face competitive disadvantage from domestic competitors who have pursued similar fleet expansion programmes. The group, which has financed its new vessels through off-balance sheet financing agreements, will be pressured to secure sufficient contracts in order to meet its non-cancellable operating lease obligations.

The group, through its 54.6%-owned subsidiary, Petra Energy Berhad (PEB), is also involved in integrated brownfield services such as major topside maintenance and minor fabrication works for oil majors. The division currently has an order book of RM1.4 billion, largely on account of its recently renewed major topside maintenance contract with Sarawak Shell Berhad and Sabah Shell Petroleum Company Limited (Shell Project), which is estimated to be worth RM1.1 billion and expected to run until December 2012. Revenue contribution from the Shell project was lower than expected, due to slower progress from unavailability of supply of workboats and barges. The group has since taken delivery of two workboats and a barge which will ensure availability of vessels in the future.

In the nine-month period ending September 30, 2009, Petra recorded 50.9% lower profit before tax of RM44.0 million (FY2008: RM119.5 million), including a loss-making third-quarter, and operating profit margin has fallen to 14.4% (FY2008: 21.93%). However, cashflow from operations remains respectable at RM79.4 million (FY2008: RM123.7 million) in spite of the group’s increase in working capital requirements on commencement of its Shell project. Provided there is no meaningful deterioration in spot charter rates or utilisation from current levels, Petra’s cash flow generation ability should improve once cash flows from the Shell project normalise.

Petra’s liquidity stems from its cash and cash equivalents amounting to RM120.0 million as at September 30, 2009 (FY2008: RM370.8 million) which has decreased after taking delivery of three vessels. The deliveries which were subsequently transferred to PEB, will be financed by loans amounting to RM170 million at its subsidiary level, which is expected to be drawn down in 4Q2009. Meanwhile, most of the group’s remaining deliveries with a capital commitment of RM582.5 million will be funded by operating lease financing. Petra’s falling debt-to-equity ratio as at September 30, 2009 which dropped to 0.75 times is also a consequence of Petra’s decision to finance its new fleet through operating leases. Adjusted for lease commitments, the adjusted leverage remains high at 1.97 times (FY2008: 2.05 times). Petra’s financial flexibility remains modest, evidenced by its recent divestment of a 5.4% equity stake in PEB at a discount through a private placement, indicating restricted access to alternative sources of financing.

The group had taken a syndicated term loan facility of RM150 million in order to partially meet repayment of borrowings amounting to RM328 million due in March 2009. In MARC’s opinion, Petra’s new debt maturity profile is more manageable with debt maturities totalling approximately RM110 million in aggregate each year until 2013, which underpins the revision of the outlook to stable from developing. The stable rating outlook reflects Petra’s improved debt maturity profile and higher corresponding cashflow coverage after the restructuring of its borrowings. Although the group’s immediate obligations are secured by Petra’s current liquidity, its on-going debt servicing ability is derived from the cash flow generation ability of the group’s assets, in particular its vessels. A failure to achieve a reasonable level of vessel utilisation may in fact exert downward pressure on the company’s rating and/or outlook.

Contacts:
Anandakumar Jegarasasingam 03-2090 2250/ kumar@marc.com.my;
Eric Chua, 03-2090 2245/ cheekiong@marc.com.my;
Ahmad Rizal Ahmad Farid, 03-2090 2253/ arizal@marc.com.my