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RAM Ratings assigns A1 rating to Yinson’s proposed IMTN Programme of up to RM1.0 bil

Published on 25 Oct 2021.

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RAM Ratings has assigned an A1/Stable rating to Yinson Holdings Berhad’s (Yinson or the Group) proposed Islamic Medium-Term Notes Programme of up to RM1.0 bil (proposed programme). Concurrently, Yinson’s corporate credit ratings of A1/Stable/P1 have been reaffirmed. The Group’s credit fundamentals are anticipated to remain supportive of the ratings over the next few years. Yinson enjoys stable operating earnings emanating from its long-term contracts. Its consistent position as among the leading floating production systems (FPS) provider to the global offshore oil and gas (O&G) sector is underlined by its proven project execution capabilities. Nevertheless, the ratings are moderated by the Group’s debt load and significant customer concentration risk.

With a current fleet of five floating, production, storage and offloading (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 acquisition of Norwegian firm Fred. Olsen Production ASA – an established global player in the 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 (two were later cancelled). Yinson expanded rapidly in the last five years, with top line growing at a compounded annual growth rate (CAGR) of 55% from RM543.26 mil in FY Jan 2017 to RM4.85 bil in FY Jan 2021 and operating profit before depreciation, interest and tax (OPBDIT) increasing at CAGR of 35% from RM259.96 mil to RM1.18 bil over the same period. The Group registered revenue and OPBDIT of a respective RM2.05 bil and RM819 mil for 1H FY Jan 2022.

FPS leasing contractors such as Yinson face high execution and construction risks. The Group has implemented proven comprehensive risk management policies, allowing it to establish an enviable track record of prompt vessel delivery within costs, maintain healthy operating margins and minimal vessel downtime. Yinson also benefits from the sector’s daunting entry barriers as oil majors emphasise the track records of FPSO contractors.

Yinson has a sizeable outstanding order book of USD8 bil over firm charter period, with contract 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, so long as the vessels operate above minimum up-time levels. Additionally, the contracts have prohibitive termination clauses where Yinson has been adequately compensated in the past. Despite the sizable order book, Yinson remains 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 RM9.02 bil as at end-July 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 about RM4.7 bil, translating to an adjusted gearing ratio of 1.8 times. 

Given debts that had risen faster than its funds from operations (FFO), Yinson’s FFO debt coverage (including share of JVs’ profits) fell from 0.20 times in FY Jan 2018 to 0.13 times in FY Jan 2021. As a complementary measure, we estimated Yinson’s operating cashflow (OCF) debt coverage, adjusted for project residual cashflow after servicing debts. This adjusted OCF debt coverage came in at 0.05 times in FY Jan 2021. Meanwhile, the Group has healthy liquidity, despite short-term debts having risen to RM1.84 bil against cash reserves of RM1.95 bil as at end-July 2021. We expect its short-term borrowings to reduce below RM1 bil in the near term.

As the Group’s newest vessel is still under conversion, total debts (excluding non-recourse loans) could exceed RM7 bil by end-January 2023 with an adjusted gearing level of 2.7 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 above 0.1 times by FY Jan 2026.

Besides the FPS segment, Yinson has a modest fleet of offshore support vessels. In its relatively new renewable energy division, the Group owns and operates a 140 MW solar plant in India and is constructing another 190 MW solar plant under a concession awarded earlier this year. Last year, the Group established its green technologies division that had since invested into nascent businesses. Yinson has set its goal of becoming carbon neutral by 2030 through reducing and offsetting greenhouse gas emissions. In the medium-term, however, these divisions are expected to remain small contributors. The Group’s maiden issuance from the proposed programme is expected to be a sustainability-linked sukuk.

 

Analytical contact
Ben Inn
(603) 3385 2510
ben@ram.com.my

Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2021 by RAM Rating Services Berhad



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