MARC has removed its ratings on Petra Perdana Berhad’s (Petra) RM400 million Secured Serial Bonds and RM400 million Medium Term Notes from MARCWatch Developing, where they had been placed on December 16, 2009 following the company’s divestment of a 25.03% stake in Petra Energy Berhad (PEB). At the same time, MARC has affirmed its A+ debt ratings on Petra with a Stable Outlook.

The affirmed ratings primarily reflect MARC’s view that the near-term impact of the divestment on Petra's credit profile is limited as a result of the use of the RM93.2 million proceeds to significantly reduce its syndicated loan borrowings. MARC expects Petra's near-term debt service capacity and liquidity to remain consistent with the current rating level, notwithstanding its significant debt maturities and capital commitments in FY2010. MARC will, however, continue to monitor Petra's earnings and cash flow generation in the coming quarters to assess the longer-term impact of the divestment on its balance sheet and credit profile.

The disposal of PEB shares has reduced Petra’s stake in PEB to 29.59% (June 30, 2009: 60%). PEB’s integrated brownfield services operations, which generate steady earnings from its major topside maintenance contracts, contributed RM37.1 million or 45.2% of Petra's FY2009 unaudited consolidated operating profits. While the deconsolidation of PEB will affect group level revenues and possibly operating margins at Petra, MARC opines that this is somewhat compensated by Petra’s reduced debt levels and debt servicing commitments in the near-term.

Petra currently operates a fleet of 22 offshore support vessels and is expected to take delivery of five new vessels by end-2010. Petra's marine services division experienced a significant contraction in its operating profit margin to 8.9% (FY2008: 27.5%) in FY2009 amid lower capacity utilisation and moderating charter rates. However, expectations of stable crude oil prices in 2010 are likely to lead to a recovery in the industry’s exploration and production activities and an improvement in Petra’s capacity utilisation in FY2010. Petra was able to secure several long-term contracts in 1Q2010. At the same time, MARC notes that PEB is the holder of the group's Petronas license and believes that existing bidding and revenue-sharing arrangements could exert pressure on reported consolidated operating margins upon deconsolidation of PEB.

The company’s cash and cash equivalents of RM 179.7 million as at December 31, 2009 and proceeds from sale of vessels collected from PEB in January 2010 amounting to RM37.6 million provides Petra with liquidity to meet its RM218 million of immediate debt repayments in FY2010, including early repayment of RM108 million arising from divestment of PEB shares. Petra's debt servicing ability beyond 2010 will depend on the cash flow generation ability of the group’s assets, in particular its vessels.

Notwithstanding the stable outlook, the ratings and the outlook could come under pressure should Petra's operating performance and debt protection measures be weaker-than-expected.

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