MARC Ratings has affirmed its A+IS rating on Yinson Holdings Berhad’s Islamic Medium-Term Notes (IMTN) programme of up to RM1.0 billion with a stable outlook. Yinson’s established track record in providing floating, production, storage and offloading vessels (FPSOs) for the oil and gas industry, its strong earnings visibility from sizeable charter contracts, and healthy profit margins remain key drivers for the rating affirmation. The key factors moderating the rating are high borrowings from continued capital requirements to support the growth of its FPSO business, and counterparty risk from charterers with weak to moderate credit profiles.
For financial year ended January 2023, group revenue rose 25.8% y-o-y to RM1.8 billion (excluding construction revenue), mainly due to higher charter income from two existing FPSO contracts that are contractually bound to increase charter payments on high oil price during the period. MARC Ratings estimates that recurring revenue base would grow by around RM780.0 million from FY2024 from FPSO Anna Nery, for which Yinson has achieved provisional acceptance in 4Q2022 and expects first oil in 2Q2023. Following this, Yinson’s operational fleet would increase to five FPSOs and one floating, storage and offloading vessel (FSO).
MARC Ratings also notes that the group has ongoing construction of three FPSOs — FPSO Atlanta, FPSO Maria Quiteria and FPSO Agogo — the latter of which was secured in February 2023 for a USD5.3 billion contract for engineering, procurement, constructing and commissioning (EPCC) works as well as a 15-year time charter and operations & maintenance agreement. This addition brings Yinson’s total number of offshore contracts to eight FPSO/FSO charter contracts and one FPSO EPCC contract. With these projects, Yinson’s order book has expanded to US$20.4 billion.
The rating agency expects total borrowings to fund these projects to increase to RM17.5 billion by FY2026 from RM11.2 billion as at FY2023. In order to alleviate pressures on its balance sheet, Yinson completed a rights issuance of RM1.2 billion in June 2022, leading to a decline in recourse gross debt-to-equity to 1.50x in FY2023 from 2.28x in the prior year. While borrowings are expected to increase for its new projects in the near term, the lifting of Yinson’s guarantee on FPSO Anna Nery’s obligations upon deployment would moderate the increase. In regard to counterparty risk which remains a concern, Yinson has not faced any collection issues to date.
Pre-tax profit was 18.0% higher y-o-y at RM845.0 million, on the back of the abovementioned increase in recurring revenue as well as recognition of EPCC profit for the construction of FPSO Maria Quiteria and FPSO Atlanta. MARC Ratings notes that margins remain strong, with adjusted pre-tax margin (excluding EPCC revenue) standing at 47.9%. Cash flow from operations (CFO) of RM2.6 billion provides healthy CFO interest and debt coverages of 4.29x and 0.18x.