Thursday, Oct 22, 2015

MARC has affirmed its AAAIS(fg) rating on investment holding company Senari Synergy Sdn Bhd’s (Senari Synergy) RM380 million Islamic Medium-Term Notes (IMTN) Programme with a stable outlook. The affirmed rating and outlook are underpinned by the unconditional and irrevocable guarantee on the IMTN obligations provided by Danajamin Nasional Berhad (Danajamin) which carries a financial insurer rating of AAA with a stable outlook from MARC.

Senari Synergy’s standalone credit profile remains dependent on the performance of its two key subsidiaries related to oil terminal operations. The two oil terminals are the independent oil terminal (IOT) located in its Assar Senari Industrial Complex I (ASIC I) in Kuching and the centralised oil distribution terminal (CODT) in its Assar Senari Industrial Complex II (ASIC II) in Tanjung Manis. The oil terminals store and distribute petroleum-based products for credible oil & gas offtakers, namely Petronas Dagangan Berhad (PDB) and Shell Timur Sdn Bhd (STSB).

These offtakers have provided steady cash flows to the group; underpinned by long-term 30-year user agreements under which tariffs incorporate a pre-tax internal rate of return on equity of 15% regardless of the throughput volume. The established tariff structure insulates the operations of the two oil terminals from demand and termination risks. Senari Synergy’s other subsidiaries, which provide port-related services, industrial and property development, have continued to underperform and rely heavily on parental support. In 2014, the group registered higher revenue of RM76.5 million but recorded a decline in operating profit of RM10.4 million (2013: RM24.1 million) due to one-off impairments totalling RM14.3 million. This consisted of RM7.0 million of interest incurred in the construction of the jetty facility in ASIC II and RM7.3 million goodwill written off on its refinery and port subsidiaries. The loss from its discontinued refinery of RM16.0 million (2013: RM8.9 million) further widened the group’s pre-tax loss to RM22.0 million (2013: negative RM0.8 million). The pre-tax loss in the preceeding year was lower on account of a gain on bargain purchase of RM4.9 million arising from the acquisition of a 40% stake in Assar Chemicals Dua Sdn Bhd from its main offtakers, PDB and STSB.

Despite the loss in 2014, the group registered higher cash flow from operations (CFO) of RM47.5 million (2013: RM22.7 million deficit) on lower working capital requirements and proceeds from the disposal of the Tanjung Manis jetty facility to Sarawak Timber Industry Development Corporation. The higher CFO, in turn, contributed to a positive free cash flow of RM44.3 million. Following a net principal repayment of RM15.0 million, the group’s cash and cash equivalents stood at RM78.0 million leading to a higher finance service cover ratio (FSCR) of 2.75 times (x) in 2014 (2013: 1.98x). However net losses in the financial year reduced the group’s shareholders equity, resulting in a debt-to-equity (DE) ratio of 2.15x in 2014. The group made another principal repayment of RM35.0 million in August 2015 and the next two principal repayments of RM35.0 million and RM40.0 million are due in August 2016 and August 2017 respectively. While Senari Synergy’s cash flow would be able to cover its debt obligations for the next two years, the group is exposed to refinancing risk due to a significant principal repayment of RM220 million in August 2018.

At the holding company level, Senari Synergy relies on dividends and interest payments from its subsidiaries to meet its obligations under the IMTN programme. In 2014, the holding company received RM10.0 million in dividends and RM21.2 million of intercompany receipts from its subsidiaries. After meeting the net IMTN principal repayment of RM15.0 million and IMTN profit payment together with financial guarantee fees of RM21.2 million (2013: RM23.2 million), the holding company’s cash and cash equivalents stood at RM43.7 million at end-2014. DE ratio, however, increased to 3.55x (2013: 2.62x) on accumulated losses due to impairment losses of RM45.0 million, arising from the discontinued operation of Assar Refinery Services Sdn Bhd. Senari Synergy is currently seeking a buyer for the loss-making refinery business.

MARC notes that the standalone credit profile of Senari Synergy remains primarily driven by operations of the IOT and CODT as the non-performing subsidiaries continue to weigh on the parent company. Nonetheless, noteholders are insulated from any downside risks related to the credit profile of Senari Synergy 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.

Nicola Tan, +603-2082 2262/,my ;
David Lee, +603-2082 2255/