Published on 16 Nov 2020.
RAM Ratings has assigned respective ratings of AA2/Stable and A1/Stable to Dialog Group Berhad’s (Dialog or the Group) up to RM3 bil Senior Islamic MTN and up to RM3 bil Subordinated Perpetual Islamic Notes. These are combined under Dialog’s proposed RM3 bil Senior Islamic Medium-Term Notes and Subordinated Perpetual Islamic Notes Programme (the Proposed Programme). The senior rating is supported by Dialog’s strong business positions, especially in the tank terminals sector, resilient earnings and conservative financial profile. The proposed Subordinated Perpetual Islamic Notes are rated two notches below the rating of the senior notes to reflect increased loss severity and risk of deferred profit payments.
Under the Proposed Programme, Dialog can issue both subordinated perpetual Islamic notes and senior Islamic notes under a combined RM3 bil limit. The proposed Subordinated Perpetual Islamic Notes will be deeply subordinated and only rank ahead of equity; profit payments can be deferred at Dialog’s discretion. The Group can also issue unrated perpetual and senior notes under the Proposed Programme.
Dialog is an established technical service provider in the upstream, midstream and downstream segments of the oil and gas (O&G) sector and also the petrochemical industry. In addition, the Group has interests in upstream O&G production assets. Dialog is a leader in the domestic tank terminals sector, through substantial ownership of and operating interests in Pengerang Deepwater Terminals (PDT), Tanjung Langsat Terminals and Kertih Terminals with combined capacity of about 4.6 mil cubic metres (cbm) currently. Particularly, PDT has substantial growth potential that is in line with the needs of current and future O&G and petrochemical plants at the Pengerang Integrated Petroleum Complex.
The midstream segment’s terminal businesses are relatively stable, underpinned by long-term lease contracts and steady operating costs. Despite the O&G downcycle, Dialog’s bottom line has been rising in the last five years, driven by its midstream and downstream segments. These segments are anticipated to keep growing, supported by the further expansion of PDT.
Notwithstanding a debt load that had doubled in the last five years to RM1.93 bil as at end-June 2020, Dialog’s gearing ratio remained manageable at 0.45 times while its net gearing stood at only 0.16 times. Backed by its robust cashflow, the Group’s funds from operations (FFO) debt coverage ratio have been hovering around 0.3 times in the last three years. To partially fund business expansion, Dialog’s debts are likely to exceed RM3 bil by end-June 2024. Nonetheless, its balance sheet is anticipated to remain sturdy through the next five years, with gearing and net gearing ratios peaking at a respective 0.55 and 0.35 times. The Group’s FFO debt coverage (including dividends) is anticipated to range around 0.30-0.35 times.
Dialog plans to add to its upstream production assets and venture downstream to the manufacturing of petrochemicals. Although these may heighten the Group’s execution risk and expose it to unfamiliar hazards, we derive comfort from the management’s track record of being financially prudent and risk-averse. Dialog will also seek suitable partners that can share the relevant expertise and risks in these ventures.
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Ratings on Dialog Group Bhd