Published on 30 Jun 2022.
RAM Ratings has reaffirmed Yinson Holdings Berhad’s (Yinson or the Group) A1/Stable/P1 corporate credit ratings and the A1/Stable rating of its Islamic Medium-Term Notes (IMTN) Programme of up to RM1.0 bil.
The reaffirmation is premised on the Group’s performance coming in within expectations and credit fundamentals that are projected to remain supportive of the ratings. Yinson’s top line in FY Jan 2022 fell 25.6% to RM3.61 bil (FY Jan 2021: RM4.85 bil), mainly due to lower revenue earned from the construction of floating, production, storage and offloading (FPSO) vessel Anna Nery and the prior year’s deemed sale (accounting treatment under lease accounting) of FPSO Abigail-Joseph. The Group’s pre-tax profit was nevertheless a stronger RM579 mil (FY Jan 2021: RM441 mil) on the back of a full-year contribution from FPSO Abigail-Joseph. Yinson’s overall balance sheet strength and cashflow debt coverage were within expectations despite the rise in its debt load. The Group concluded its rights issuance on 28 June 2022, generating gross proceeds of RM1.2 bil. The exercise will strengthen Yinson’s balance sheet moving forward, even as debts increase substantially to fund new vessels.
Yinson is the sixth largest global independent FPSO provider by operating fleet size. Including new vessel orders, it would be the fourth largest. The Group secured two out of the total nine new FPSO contracts awarded globally in 2021 – the chartering of FPSO Maria Quiteria to Petroleo Brasileiro SA (Petrobras) and the operations and maintenance (O&M) of the vessel for 22.5 years, with a contract value of USD5.2 bil; and the engineering, procurement, construction and installation and two-year O&M of FPSO Atlanta for Enauta Energia SA (Enauta), with a contract value of USD505 mil. The contract with Enauta gives Yinson the option to acquire the vessel prior to its completion with a USD1.98 bil 15-year charter and O&M agreement.
The new contracts boosted Yinson’s outstanding order book to USD12.85 bil as at end-January 2022 (end-January 2021: USD8 bil). Coupled with the 7 to 25-year tenures of the Group’s leasing contracts and limited variability in revenue, these jobs ensure long-term earnings stability. Additionally, Yinson’s charter contracts incorporate prohibitive exit clauses where termination is allowed, which the Group has been adequately compensated in the past.
Despite its record level of contracts, the Group is exposed to customer concentration risk as its top charterer, Petrobras, accounts for 81% of its firm order book as at end-January 2022. This also means significant exposure to political risk in Brazil. Yinson also operates in countries with greater geopolitical risk and less developed legal institutions and infrastructure.
FPSO leasing contractors like Yinson face high execution and construction risks. The Group’s comprehensive risk management policies have allowed it to establish a track record of prompt vessel delivery within budget, maintain healthy operating margins and minimal vessel downtime. We understand the construction of FPSO Anna Nery is on track for completion in 2H FY Jan 2023 despite challenges posed by the pandemic. Yinson benefits from the sector’s daunting entry barriers as oil majors emphasise the track records of FPSO contractors.
Yinson’s ratings are weighed down by its balance sheet and debt coverage. Total borrowings rose to RM10.65 bil as at end-January 2022 (end-January 2021: RM7.99 bil), given funding needs for the construction of FPSO Anna Nery and the issuance of RM1 bil of sukuk in Q4 FY Jan 2022. The Group’s debts include RM1.85 bil of perpetual hybrid securities which do not qualify for equity credit under RAM’s criteria. Yinson also utilises non-recourse project financing where vessels become self-financing when they achieve stable operations. Excluding non-recourse loans, borrowings amounted to RM6.6 bil, translating into adjusted gearing of 2.3 times (end-January 2021: RM4.6 bil and 2.1 times, respectively). By end-January 2024, we expect total debts (excluding non-recourse) to exceed RM9 bil. Even so, given significant balance sheet buffer provided by the rights issuance, gearing is estimated at 1.8 times as of the same date.
Owing to rapid debt expansion and a slight dip in funds from operations (FFO), Yinson’s FFO debt coverage declined to 0.09 times for FY Jan 2022 (FY Jan 2021: 0.13 times). Considering ring-fenced project-level debts and cashflow, an estimate of the Group’s operating cashflow (OCF) debt coverage based on project residual cashflow after servicing debts is more meaningful. The adjusted OCF debt coverage for FY Jan 2022 remained unchanged at 0.05 times. This ratio is projected to stay at about 0.05 times over the next three years.
Yinson owns and operates a 140 MW solar plant in India and is building another with a capacity of 190 MW in the country. The Group has set out clear climate goals of reaching carbon neutrality by 2030 and net zero emissions by 2050 by growing its renewable energy segment and reducing the carbon footprint of its offshore operations. Yinson also has a relatively small green technologies division that has invested in nascent businesses and a modest fleet of offshore support vessels.
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Thong Mun Wai
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Ratings on Yinson Holdings Berhad