MARC Ratings has affirmed its A+_IS rating on Yinson Holdings Berhad’s RM1.0 billion Islamic Medium-Term Notes Programme (Senior Sukuk). Concurrently, the rating agency has also affirmed its A-_IS rating on the group’s RM1.0 billion Subordinated Perpetual Islamic Notes Programme (Perpetual Sukuk). The two-notch rating differential between the instruments reflects the subordinated structure of the Perpetual Sukuk. The outlook on all ratings is stable.

The senior rating affirmation continues to reflect Yinson’s healthy profit margins, and long-term earnings visibility from sizeable charter contracts for providing floating, production, storage and offloading (FPSO) vessels. The rating also factors in Yinson’s established track record in the FPSO industry which has enabled them to build a sizeable portfolio. These strengths notwithstanding, the weak-to-moderate risk profile of counterparties, and the capital-intensive nature of the FPSO business that has led to growing borrowings remain key moderating factors of the rating.

MARC Ratings understands that total borrowings will increase to around RM22.8 billion in the financial year ending January 2025 (FY2025), from RM18.0 billion as at end-FY2024. The increase in borrowings will mainly fund the remaining construction of FPSO Maria Quitéria and FPSO Agogo. Borrowings had also increased from earlier projections in part due to the weakening ringgit, as most of Yinson’s borrowings are denominated in USD. MARC Ratings notes, however, that Yinson’s principally USD-denominated revenue provides a natural hedge for USD debt service, mitigating currency risk.

Yinson’s projected gross recourse debt-to-equity (DE) ratio of around 2.1x for FY2025 (FY2024: 1.6x) is expected to be temporary, and would ease to around 1.5x after FPSO Maria Quitéria becomes operational in October 2024. This would lead to Yinson’s guarantee of around RM4.5 billion on this FPSO’s loans being released in FY2026. MARC Ratings also expects the group to adhere to a recourse DE level of around 1.5x going forward. Towards this end, the group may consider raising equity instruments to alleviate leverage pressure on its balance sheet.

Yinson’s financial performance was well within expectations for FY2024. Recurring revenue (excluding construction revenue) rose 22.9% y-o-y to RM1.0 billion, supported by a full year’s contribution from FPSO Anna Nery. Operating profit margins remained strong, with FPSO margins standing at 57.7%. Pre-tax profit increased by 98.2%, supported by construction profit recognised for FPSO Atlanta, FPSO Maria Quitéria and FPSO Agogo. Cash flow from operations was also higher at RM3.1 billion on improved revenue and profit.