MARC has placed the AA-IS and MARC-1IS/AA-IS ratings of Offshoreworks Capital Sdn Bhd’s (OWC) RM200 million Sukuk Musyarakah and up to RM150 million Musyarakah Commercial Papers/Medium Term Notes Programme (MCP/MMTN) on MARCWatch Negative. The ratings were previously affirmed with a negative outlook in December 2009.

OWC is a wholly-owned subsidiary and issuing vehicle of Offshoreworks Holdings Sdn Bhd (OHSB). OHSB is an integrated upstream oil and gas service provider operating under four main segments: underwater diving, geo-hydrographic survey, construction and engineering, and ship management and chartering services. The rated facility benefits from an assignment of contract revenue from OHSB and/or its subsidiaries. While the Sukuk has historically benefited from a rating uplift from the stand-alone rating of OHSB due to structural protection afforded by the assignment of revenues, MARC believes that performance risk of OHSB on the underlying contracts has risen, necessitating a review of the current ratings.

The placement of the ratings on MARCWatch Negative reflects MARC’s concern over the group’s operating performance in 2010 which has fallen significantly below the agency’s expectations. Unaudited accounts of the group for 1H2010 reveal a sharp decline in revenue to RM124.0 million (1H2009: RM305.4 million) due to significantly lower realised revenue from its main underwater diving division. Consequently, profit before tax declined to RM2.7 million (1H2009: RM18.0 million). MARC is also concerned about the under-utilisation of OHSB’s assets due to deferment in some of its major contracts. This is expected to impact the company’s profitability and liquidity to perform its obligations on the contracts in respect of which proceeds are expected to fund debt service on the rated facility.

The group’s days receivables and days payable in 1H2010 have increased substantially from FY2009 due to the decrease in turnover. Liquidity measures are expected to remain weak as the group’s working capital requirements continue to be elevated. Meanwhile, OHSB’s debt to equity ratio stood at 1.65 times as at June 30, 2010 (December 2009: 1.71 times).

MARC is in the midst of conducting its annual review on the ratings, and expects to resolve the MARCWatch within the next four to five weeks.

Contacts:
Eric Chua 03-2082 2245/ cheekiong@marc.com.my;
Ahmad Rizal Ahmad Farid 03-2082 2253/ arizal@marc.com.my;
Anandakumar Jegarasasingam 03-2082 2250/ kumar@marc.com.my.