MARC has placed the A+IS and MARC-2IS/A+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 due to an expected covenant breach by Offshoreworks Holdings Sdn Bhd (OHSB). OWC is a funding vehicle of oilfield services provider OHSB. OHSB is the holding company of the Offshoreworks Group which participates in the underwater diving, geosurveying, construction and engineering, and ship management and chartering segments of the oilfield services sector. Its client base is mostly comprised of oil majors.

The ratings were downgraded to A+IS and MARC-2IS/A+IS from AA-IS and MARC-1IS/AA-IS in January 2011 due to OHSB's losses up to the first nine months of 2010 (9M2010). The stable outlook attached to the downgraded ratings incorporated MARC’s expectation of an improved earnings outlook due to its outstanding order book position, but was conditioned upon OHSB reducing its debt and/or increasing its equity base. Since then, MARC has been informed that the company’s losses before tax for the year based on unaudited accounts as at end-November had widened significantly to RM119.5 million (9M2010: RM42.3 million) largely due to an increase in non-recoverable operating costs to RM114.6 million (9M2010: RM54.8 million) primarily as a result of non-utilisation of vessels chartered on a bareboat basis.

As a result, OHSB’s shareholders’ funds as at end-November 2010 decreased to RM90.7 million (9M2010: RM161.8 million) and its debt-to-equity ratio has increased to 4.3 times (9M2010: 2.46 times), which is above its covenanted limit of 2.5 times. The group’s outstanding order book stood at RM1.45 billion as at December 2010. However, OHSB’s ability to execute the orders will be challenged by its liquidity position which has rapidly deteriorated. Its cash balances excluding fixed deposits have declined to RM17.8 million (September 2011: RM70.8 million) due to ongoing working capital requirements. OHSB has commenced its financial restructuring plan which involves a sizable equity infusion and reduction in debt post-restructuring, Meanwhile, OWC has requested a temporary waiver of the gearing covenant and sinking fund build-up requirements until August 2011 pending completion of the restructuring initiatives.

MARC is reviewing its debt ratings on OWC in light of these latest developments and expects to resolve the MARCWatch within the next three months. The ratings are likely to be downgraded by multiple notches unless significant progress is made on the group’s restructuring to alleviate the pressure on its credit profile.

Contacts:
Eric Chua, +603-2082 2245/ cheekiong@marc.com.my;
Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my;
Anandakumar Jegarasasingam’ +603-2082 2250/ kumar@marc.com.my.