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Ratings

MARC Ratings assigns preliminary rating of AA-IS to Orkim’s RM1.0 billion Sukuk Programme

21 November 2024

Access the full report here.

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Contacts

Neo Xue Wei
+603-2717 2937/ xuewei@marc.com.my

Ahmad Kamal Syauki
+603-2717 2958/ kamal@marc.com.my

Sharidan Salleh
+603-2717 2954/ sharidan@marc.com.my

MARC Ratings has assigned a preliminary rating of AA-IS to Orkim Sdn Bhd’s proposed Islamic Medium-Term Notes (IMTN) Programme of up to RM1.0 billion with a stable outlook.

Orkim’s leading position in the domestic transportation of clean petroleum products (CPP) and ownership of the largest fleet in the domestic CPP tanker segment (end-June 2024: 15 CPP tankers and two liquified petroleum gas tankers) are key rating drivers. High earnings visibility from charter contracts with reputable oil majors and high barriers to entry are supportive of the rating. The rating is moderated by high borrowings on the back of continued capital requirements for vessel acquisitions and by exposure to contract renewal risk.

MARC Ratings notes that Orkim maintains a healthy mix of long-term contracts that provide earnings visibility, and short-term contracts that benefit from potential hikes in charter rates. Seven of its 17 vessels are on long-term contracts ranging from five to 10 years. Among Orkim’s key clients are Petroliam Nasional Berhad (PETRONAS) and Shell Malaysia, whose contracts since 2010 have driven fleet expansion over the years. Vessel utilisation rate has also been consistently high at around 90%, indicating Orkim’s ability to charter out vessels with minimal downtime. Charter renewal risk is substantially mitigated by the continued demand for CPP tankers to support Malaysia’s growing trade of refined petroleum products, as well as Orkim’s longstanding relationships with its strong counterparties. This is evident in the recent renewal/extension of expiring contracts for nine of its vessels.

Over the next three years, Orkim plans to acquire seven new vessels (three CPP tankers and four chemical tankers) to replace seven of its older CPP tankers. These new vessels would be more efficient and eco-friendlier, in line with Orkim’s ESG commitments. Two of the seven vessels have already secured new contract awards and are currently under construction in Fujian, China; orders for the remaining vessels will be placed once charter contracts are secured.

Borrowings, projected to increase to RM951.4 million in 2027 from RM339.4 million as at end-1H2024, will fund the construction of newbuilds and/or acquisitions. This includes proceeds from an initial drawdown of RM300.0 million under the rated sukuk. As a result, leverage ratio would rise to 1.23x in 2027 before declining thereafter. The rating agency does not view this as a major concern given the projected charter income is deemed to be sufficient to cover debt service, with projected finance service coverage ratio without cash standing at a minimum of 2.04x in 2027, and averaging 2.35x for the period between 2025 and 2028.

In 1H2024, revenue rose by 12.7% y-o-y to RM159.0 million on the back of higher charter rates following contract renewals for some of its vessels, as well as higher spot charter rates. In line with this, pre-tax profit increased to RM47.1 million (2023: RM33.1 million). As the group’s two newbuild vessels would command higher charter rates upon their deliveries in 2027 owing to their larger sizes and newer technology, Orkim’s revenue and earnings are expected to improve.

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