MARC has assigned a corporate credit rating of A+ with a stable outlook to Yinson Holdings Berhad (Yinson).
The assigned rating is primarily driven by the group’s strong business profile in the floating, production, storage and offloading vessels (FPSO) segment from which it has been able to secure recurrent sizeable long-term FPSO contracts, providing earnings visibility and healthy profit margins.
The rating is constrained by the group’s increased leverage position and negative free cash flow, mainly due to continuous capex in line with its business growth. The weak-to-moderate credit profile of most of its charterers, despite the status of some as national oil companies in emerging countries, is also a moderating factor.
Yinson is considered as a large independent global player in the FPSO segment and has five FPSOs (another under construction) and one FSO with an order book of USD 9.75 billion as at end-March 2021. The group’s charter contracts with oil companies are structured to provide steady charter income that typically stretch up to 25 years to fully cover the capital investments in the FPSOs. Notwithstanding the steady income streams and the recourse it has in the event of contract termination, Yinson is exposed to repayment risk of the charterers whose repayment capability is susceptible to oil price movements and geopolitical risk. While more than half of Yinson’s order book are charter contracts that fall in the aforementioned category, the rating agency understands that the group has not faced repayment issues as of date.
Yinson possesses strong FPSO technical expertise, initially gained from the acquisition of Norway-based Fred. Olsen Production ASA in 2014. The group has demonstrated timely delivery and cost containment during the construction period as well as high FPSO uptime of above 99% during the operational period in the last five years.
The group’s borrowings have risen by more than threefold to about RM8.0 billion between 2016 and end-January 2021 (FY2021) to largely finance its growth in the FPSO segment. The group may raise new equity to part finance new projects to reduce pressure on its leverage position. Gross debt-to-equity (DE) ratio stood at 3.65x; excluding the non-recourse financing, Yinson’s DE ratio would stand at 1.63x.
Yinson registered revenue of RM1.5 billion (excluding a one-off revenue recognition from the lease commencement of an FPSO) and pre-tax profit of RM580 million in FY2021. Its pre-tax profit margin was a strong 39.9%. Going forward, revenue growth will be supported by the charter of FPSO Anna Nery which is under construction and will be deployed in Brazil in 2Q2023. The group’s cash flow from operations remains healthy, registering RM1.5 billion in FY2021 (FY2020: RM917.4 million) and providing interest cover of 2.95x.