MARC lowers Scomi RM500m notes to 'BBB+' (7158)

Malaysian Rating Corporation Bhd (MARC) has downgraded its rating on Scomi Group Berhad's RM500 million Medium Term

Notes programme to BBB+ from A.



The rating continues to be maintained on MARCWatch Negative, it said in a statement.



The continued negative watch placement reflects MARC's view that
further downward rating pressure could develop in the event that the
revised target completion dates for the aforementioned equity
divestments and RM85.0 million refinancing are missed. The rating
action affects RM200 million of outstanding notes.



The downgrade in Scomi's rating reflects noteholders' rising
susceptibility to event risk as a result of a delay encountered in the
completion of its announced divestments of equity in subsidiaries,
Scomi Nigeria Pte Ltd (SNPL) and Oiltools Africa Ltd (OAL), it said.





The delay in its asset disposal programme has impacted the timeline
for Scomi's proposed partial refinancing of the outstanding notes,
given that the refinancing transaction is condition upon the completion
of its asset disposal plan, it added.


MARC is of the view that the compressed timeframe to complete the
asset sales and proposed refinancing transaction, significantly
increases the risk that the repayment of notes will not be made on a
timely basis.


The outstanding notes mature on Sept 28, 2012, and liquidity and

refinancing risks will increase as the date approaches. The rating
downgrade also takes into account the continuing pressure on Scomi's
operating performance and its insufficient cash flow generation, it
said.


MARC believes that the risk profile of the rated notes is no longer consistent with an 'A' rating level.



The group managed to post an unaudited pre-tax profit of RM22.9
million in the first quarter of 2012 (1Q2012) compared with a full-year
pre-tax losses of RM225.3 million and RM174.8 million in 2011 and 2010
respectively.


Its operational cash flow, however, was negative RM11.9 million for
1Q2012. Scomi's consolidated debt-to-equity ratio, meanwhile, rose
further to 1.95 times as at end-March 2012.


It said Scomi is dependent on asset sales, capital repayment from
43 per cent-owned Scomi Marine Berhad (SMB), and refinancing to repay
the outstanding notes.


While Scomi has encountered delay in planned asset sales, the
group's internal restructuring was completed in April this year as per
schedule.


SMB will be making a capital repayment to its shareholders
following the disposal of several marine logistic subsidiaries to
another group entity.


Scomi expects to receive a capital repayment of RM58.0 million from
SMB. The proceeds from Scomi's announced equity divestments of its
entire equity interest in SNPL, and a two per cent equity interest in
OAL to Nigerian-based oil service company AOS Orwell Ltd, are now
likely to be received from the June target date to end August this
year.


The delay is due to the several conditions precedent to the
acquisition that has been imposed by the buyer and MARC understands
from Scomi that efforts are being made to fulfill them.


Scomi's refinancing target date has also been pushed back for two
months. MARC views the residual execution risk surrounding the
aforementioned equity divestments and refinancing risk as the key risks
facing Scomi. -- Bernama