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MARC affirms its AAAIS(Fg) rating on Senari Synergy's Rm380.0 Million Islamic Medium-Term Notes Programme; Outlook Stable

IM Press Release
By IM Press Release
6 years ago
MARC affirms its AAAIS(Fg) rating on Senari Synergy's Rm380.0 Million Islamic Medium-Term Notes Programme; Outlook Stable

Ard, Arif, Islam, Mal


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  1. IB ​ ​Press​ ​Release​ ​Service Published​ ​on:​​ ​IslamicBanker.com​ ​Publications:​ ​https://www.islamicmarkets.com/publications MARC​ ​affirms​ ​its​ ​AAAIS(Fg)​ ​rating​ ​on​ ​Senari Synergy's​ ​Rm380.0​ ​Million​ ​Islamic Medium-Term​ ​Notes​ ​Programme;​ ​Outlook Stable 14​ ​November​ ​2017 MARC​ ​has​ ​affirmed​ ​its​ ​AAAIS(fg)​ ​rating​ ​on​ ​Sarawak-based​ ​investment​ ​holding​ ​company​ ​Senari Synergy​ ​Sdn​ ​Bhd's​ ​(Senari​ ​Synergy)​ ​RM380​ ​million​ ​Islamic​ ​Medium-Term​ ​Notes​ ​(IMTN) Programme​ ​with​ ​a​ ​stable​ ​outlook.​ ​The​ ​rating​ ​and​ ​outlook​ ​hinge​ ​on​ ​an​ ​unconditional​ ​and irrevocable​ ​guarantee​ ​provided​ ​by​ ​Danajamin​ ​Nasional​ ​Berhad​ ​(Danajamin)​ ​on​ ​the​ ​IMTN obligations.​ ​Danajamin​ ​carries​ ​a​ ​financial​ ​insurer​ ​rating​ ​of​ ​AAA​ ​with​ ​a​ ​stable​ ​outlook​ ​from MARC. Senari​ ​Synergy's​ ​standalone​ ​credit​ ​profile​ ​incorporates​ ​its​ ​long-term​ ​contracts​ ​with​ ​credible​ ​oil​ ​& gas​ ​offtakers,​ ​its​ ​large​ ​financial​ ​obligations​ ​and​ ​the​ ​impact​ ​from​ ​poor-performing​ ​subsidiaries. The​ ​30-year​ ​offtake​ ​agreements​ ​with​ ​PETRONAS​ ​Dagangan​ ​Berhad​ ​and​ ​Shell​ ​Timur​ ​Sdn​ ​Bhd for​ ​storing​ ​and​ ​distributing​ ​petroleum-based​ ​products​ ​through​ ​an​ ​independent​ ​oil​ ​terminal​ ​(IOT) in​ ​Kuching​ ​and​ ​a​ ​centralised​ ​oil​ ​distribution​ ​terminal​ ​(CODT)​ ​in​ ​Tanjung​ ​Manis​ ​respectively generate​ ​modest​ ​cashflows.​ ​The​ ​IOT​ ​and​ ​CODT​ ​are​ ​owned​ ​and​ ​operated​ ​by​ ​subsidiaries​ ​Assar Chemicals​ ​Sdn​ ​Bhd​ ​(ACSB)​ ​and​ ​Assar​ ​Chemicals​ ​Dua​ ​Sdn​ ​Bhd​ ​respectively.​ ​Given​ ​the guaranteed​ ​pre-tax​ ​internal​ ​rate​ ​of​ ​return​ ​on​ ​equity​ ​of​ ​15%​ ​regardless​ ​of​ ​the​ ​throughput​ ​volume under​ ​the​ ​agreements,​ ​the​ ​oil​ ​terminals'​ ​operations​ ​are​ ​insulated​ ​from​ ​demand​ ​and​ ​termination risks.​ ​However,​ ​following​ ​the​ ​downward​ ​revision​ ​of​ ​ACSB's​ ​IOT​ ​tariff​ ​in​ ​its​ ​tenth​ ​contract​ ​year, its​ ​revenue​ ​declined​ ​by​ ​48.6%​ ​y-o-y​ ​to​ ​RM15.3​ ​million​ ​in​ ​2016. The​ ​performance​ ​of​ ​Senari​ ​Synergy's​ ​other​ ​subsidiaries,​ ​particularly​ ​in​ ​the​ ​port-related​ ​services, industrial​ ​and​ ​property​ ​development​ ​segments,​ ​remained​ ​modest​ ​in​ ​2016.​ ​The​ ​company​ ​is​ ​in the​ ​midst​ ​of​ ​disposing​ ​of​ ​its​ ​loss-making​ ​subsidiary​ ​Assar​ ​Refinery​ ​Services​ ​Sdn​ ​Bhd​ ​(ARSSB) by​ ​end-2017​ ​although​ ​net​ ​losses​ ​narrowed​ ​to​ ​RM6.5​ ​million​ ​in​ ​2016​ ​from​ ​negative​ ​RM9.5 million.​ ​ARSSB​ ​currently​ ​concentrates​ ​on​ ​the​ ​trading​ ​of​ ​crude​ ​palm​ ​oil​ ​and​ ​providing​ ​bulking facilities​ ​following​ ​the​ ​discontinuation​ ​of​ ​its​ ​refinery​ ​operations​ ​in​ ​2013.​ ​Senari​ ​Synergy​ ​has​ ​fully impaired​ ​its​ ​investment​ ​cost​ ​in​ ​ARSSB​ ​in​ ​2015. In​ ​2016,​ ​Senari​ ​Synergy's​ ​revenue​ ​declined​ ​to​ ​RM312.0​ ​million​ ​from​ ​RM468.3​ ​million​ ​in​ ​the previous​ ​year,​ ​partly​ ​arising​ ​from​ ​the​ ​revision​ ​of​ ​ACSB's​ ​IOT​ ​tariff​ ​and​ ​a​ ​lower​ ​contribution​ ​by ARSSB.​ ​The​ ​group's​ ​free​ ​cash​ ​flow​ ​stood​ ​lower​ ​at​ ​RM67.4​ ​million​ ​(2015:​ ​RM88.5​ ​million). Notwithstanding​ ​the​ ​fact​ ​that​ ​Senari​ ​Synergy's​ ​shareholders​ ​have​ ​advanced​ ​a​ ​sum​ ​of​ ​RM37.5
  2. IB ​ ​Press​ ​Release​ ​Service Published​ ​on:​​ ​IslamicBanker.com​ ​Publications:​ ​https://www.islamicmarkets.com/publications million​ ​to​ ​the​ ​group,​ ​a​ ​higher​ ​net​ ​repayment​ ​of​ ​ARSSB's​ ​bankers'​ ​acceptance​ ​of​ ​RM63.9​ ​million (2015:​ ​RM9.6​ ​million)​ ​during​ ​the​ ​year​ ​depleted​ ​its​ ​cash​ ​balance​ ​to​ ​RM18.9​ ​million​ ​(2015: RM80.2​ ​million).​ ​Following​ ​a​ ​repayment​ ​of​ ​RM35.0​ ​million​ ​of​ ​IMTN​ ​and​ ​RM6.0​ ​million​ ​in​ ​term loans,​ ​total​ ​group​ ​borrowings​ ​declined​ ​to​ ​RM327.2​ ​million​ ​(2015:​ ​RM432.0​ ​million). However,​ ​the​ ​widening​ ​accumulated​ ​losses​ ​of​ ​RM92.9​ ​million​ ​have​ ​reduced​ ​the​ ​group's shareholders'​ ​equity​ ​to​ ​RM39.0​ ​million​ ​(2015:​ ​RM50.5​ ​million),​ ​leading​ ​to​ ​a​ ​higher​ ​adjusted debt-to-equity​ ​ratio​ ​of​ ​2.80​ ​times​ ​in​ ​2016​ ​(2015:​ ​2.59​ ​times). At​ ​the​ ​holding​ ​company​ ​level,​ ​Senari​ ​Synergy​ ​received​ ​RM9.0​ ​million​ ​in​ ​dividends​ ​and​ ​RM15.1 million​ ​in​ ​interest​ ​income​ ​from​ ​its​ ​subsidiaries.​ ​Its​ ​cash​ ​and​ ​cash​ ​equivalents​ ​of​ ​RM6.5​ ​million after​ ​meeting​ ​the​ ​net​ ​IMTN​ ​principal​ ​repayment​ ​of​ ​RM35.0​ ​million​ ​and​ ​total​ ​finance​ ​cost​ ​of RM17.7​ ​million​ ​remains​ ​low.​ ​In​ ​view​ ​of​ ​the​ ​underwhelming​ ​performance​ ​of​ ​Senari​ ​Synergy's non-core​ ​subsidiaries​ ​and​ ​limited​ ​business​ ​growth​ ​of​ ​its​ ​core​ ​subsidiaries,​ ​Senari​ ​Synergy​ ​may have​ ​to​ ​rely​ ​on​ ​its​ ​shareholders'​ ​advances​ ​in​ ​the​ ​short​ ​term​ ​to​ ​meet​ ​its​ ​financial​ ​obligations.​ ​As a​ ​result​ ​of​ ​its​ ​weak​ ​cash​ ​position,​ ​Senari​ ​Synergy​ ​rolled​ ​over​ ​RM20.0​ ​million​ ​IMTNs​ ​of​ ​the​ ​rated programme​ ​in​ ​August​ ​2017​ ​with​ ​the​ ​remaining​ ​repaid​ ​with​ ​short-term​ ​borrowings. MARC​ ​notes​ ​that​ ​Senari​ ​Synergy​ ​faces​ ​significant​ ​refinancing​ ​risk​ ​in​ ​2018​ ​as​ ​it​ ​potentially​ ​faces a​ ​large​ ​repayment​ ​of​ ​RM240​ ​million​ ​in​ ​August​ ​2018​ ​given​ ​its​ ​limited​ ​financial​ ​flexibility​ ​under​ ​the existing​ ​programme.​ ​MARC​ ​expects​ ​Senari​ ​Synergy​ ​to​ ​commence​ ​its​ ​refinancing​ ​exercise​ ​soon with​ ​a​ ​new​ ​programme​ ​that​ ​has​ ​a​ ​lengthened​ ​maturity​ ​profile​ ​to​ ​better​ ​match​ ​its​ ​debt​ ​repayment capacity. Any​ ​downside​ ​risks​ ​on​ ​Senari​ ​Synergy's​ ​credit​ ​profile​ ​are​ ​mitigated​ ​by​ ​the​ ​irrevocable​ ​and unconditional​ ​guarantee​ ​provided​ ​by​ ​Danajamin.​ ​Any​ ​changes​ ​in​ ​the​ ​supported​ ​rating​ ​or​ ​rating outlook​ ​will​ ​be​ ​primarily​ ​driven​ ​by​ ​changes​ ​in​ ​Danajamin's​ ​credit​ ​strength. Organisation​ ​Name: News​ ​Type: Malaysian​ ​Rating​ ​Corporation​ ​Berhad​ ​(MARC) RATING​ ​ANNOUNCEMENT Source: BNM​ ​Announcements Media​ ​Contact David​ ​Lee,​ ​+603-2717​ ​2955/​ ​david@marc.com.my
  3. IB ​ ​Press​ ​Release​ ​Service Published​ ​on:​​ ​IslamicBanker.com​ ​Publications:​ ​https://www.islamicmarkets.com/publications Disclaimer: This​ ​communication​ ​is​ ​provided​ ​by​ ​Malaysian​ ​Rating​ ​Corporation Berhad​ ​(MARC)​ ​on​ ​the​ ​basis​ ​of​ ​information​ ​believed​ ​by​ ​MARC​ ​to​ ​be accurate​ ​and​ ​reliable​ ​as​ ​derived​ ​from​ ​publicly​ ​available​ ​sources​ ​or provided​ ​by​ ​the​ ​rated​ ​entity​ ​or​ ​its​ ​agents.​ ​MARC,​ ​however,​ ​has​ ​not independently​ ​verified​ ​such​ ​information​ ​and​ ​makes​ ​no​ ​representation as​ ​to​ ​the​ ​accuracy​ ​or​ ​completeness​ ​of​ ​such​ ​information.​ ​Any assignment​ ​of​ ​a​ ​credit​ ​rating​ ​by​ ​MARC​ ​is​ ​solely​ ​to​ ​be​ ​construed​ ​as​ ​a statement​ ​of​ ​its​ ​opinion​ ​and​ ​not​ ​a​ ​statement​ ​of​ ​fact.​ ​A​ ​credit​ ​rating​ ​is not​ ​a​ ​recommendation​ ​to​ ​buy,​ ​sell,​ ​or​ ​hold​ ​any​ ​security.