Published on 23 Jun 2021.
RAM Ratings has assigned corporate credit ratings of A1/Stable/P1 to Yinson Holdings Berhad (Yinson or the Group). The ratings are supported by the Group’s commendable business position within the global oil and gas (O&G) floating, production, storage and offloading (FPSO) sector. The ratings are also backed by the stability of Yinson’s long-term contractual revenue. Nevertheless, the ratings are moderated by its debt load and significant customer concentration risk.
With a current fleet of five FPSO vessels, one floating, storage and offloading vessel and another FPSO under construction, Yinson is the sixth largest FPSO leasing contractor in the world. The Group focuses on the supply of FPSOs in Southeast Asia, West Africa and Brazil. The acquisition of Norwegian firm Fred. Olsen Production ASA – an established global player in the floating production systems (FPS) segment – in 2014 boosted Yinson’s FPS business. Notably, since the acquisition, the Group was able to build on its excellent track record and won six FPSO contracts. Yinson has expanded rapidly in the last five years, turning in top line and operating profit before depreciation, interest and tax (OPBDIT) of a respective RM4.85 bil and RM1.18 bil in FY Jan 2021 (FY Jan 2017: RM543.26 mil and RM259.96 mil, respectively).
FPS leasing contractors such as Yinson face high execution and construction risks which, if not managed well, can result in substantial losses and reputational damage. In this regard, Yinson has implemented proven comprehensive risk management policies from contract bidding to vessel operations. This has allowed it to establish an enviable track record of prompt vessel delivery within costs, maintaining healthy operating margins and minimal vessel downtime.
Yinson has a sizeable outstanding order book of USD8 bil over firm charter period, consisting of contracts with very long tenures of up to 25 years. Revenue from the charter contracts have limited variability as these do not depend on crude oil output or prices, if the vessels are operated above minimum up-time levels. Additionally, the contracts have prohibitive termination clauses where Yinson has been adequately compensated in the past for early cessation of charters. The Group also benefits from the sector’s daunting entry barriers as oil majors emphasise the track records of FPSO contractors. Despite the sizable order book, Yinson is exposed to customer concentration risks as its top three charterers account for 90% of its order book. It also operates in countries with higher geopolitical risks with less developed legal institutions and infrastructure.
Yinson’s ratings are weighed down by its balance sheet and debt coverage. The fast-paced expansion in the last five years has resulted in its debts more than doubling to RM7.98 bil as at end-January 2021. Its debt burden includes RM1.85 bil of perpetual hybrid securities which do not qualify for equity credit under RAM’s criteria. The Group also enters into non-recourse project financing where the vessels become self-financing when operational. Excluding the non-recourse loans, the borrowings amounted to RM4.57 bil, translating to an adjusted gearing ratio of 2.1 times. We estimate Yinson’s adjusted operating cashflow (OCF) debt coverage – based on project residual cashflow after servicing debts – to come in at 0.05 times in FY Jan 2021. Meanwhile, the Group has healthy liquidity, represented by RM1.82 bil of cash reserves against RM808 mil of short-term debts as at end-January 2021.
As the Group’s newest vessel is still under conversion, total debts (excluding non-recourse loans) could exceed RM6.5 bil by end-January 2023 with an adjusted gearing level of 2.6 times. Its adjusted OCF debt coverage is estimated to remain unchanged over the next two years. Moving forward, Yinson plans to lessen its debt requirements, which may include reducing interests in its vessels and issuing capital. If this is implemented successfully, its respective adjusted gearing and adjusted OCF debt coverage may ease below 1.0 time and improve towards 0.15 times by FY Jan 2026.
Besides the FPS segment, Yinson has a modest fleet of offshore support vessels. It also owns and operates a 140 MW solar plant in India under its relatively new renewable energy division. It was recently awarded another concession for 190 MW solar plant in India. Last year, the Group established its green technologies division that had made some investments into nascent businesses. While intended to provide meaningful diversification, these divisions are expected to remain small contributors in the medium term.
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Ratings on Yinson Holdings Berhad