RAM Ratings has affirmed Yinson Holdings Berhad's A1/Stable/P1 corporate credit ratings and the A1/Stable rating of its Islamic Medium-Term Notes (IMTN) Programme of up to RM1 bil.

The affirmations are premised on Yinson's credit fundamentals remaining supportive of the ratings. The Group delivered its new floating, production, storage and offloading (FPSO) vessels, Atlanta and Maria Quiteria, without major delays and slightly above budget amidst widespread post-pandemic supply chain issues and cost escalations. Yinson remains among the leading floating production systems (FPS) providers to the global offshore oil and gas sector. Its rapid expansion in recent years, however, has resulted in a ballooning debt load while customer concentration risks are significant.

In line with our expectations, the substantial progress of vessels under construction and growth in FPS operations almost doubled Yinson's top line to RM11.65 bil for FY Jan 2024 (FY Jan 2023: RM6.32 bil). Strong earnings from these operations, partially offset by higher financing costs, contributed to a bottom line of RM1.56 bil, more than twice the sum in FY Jan 2023 (RM718 mil).

Total debts as at end-January 2024 jumped to RM18.23 bil (end-January 2023: RM11.48 bil), given the construction of the new vessels and a weaker ringgit. Yinson's key financial ratios were weaker than expected as start-up delays for FPSO Anna Nery resulted in the project loans becoming non-recourse in March 2024 instead of end-January 2024 (ring-fenced project debts become non-recourse when vessels achieve satisfactory operations). Excluding non-recourse debts, the Group's gearing as at end-January 2024 and adjusted operating cashflow (OCF) debt coverage for fiscal 2024 were a respective 1.93 times and 0.03 times (1.74 times as at end-January 2023, 0.05 times in fiscal 2023). Notably, the adjusted OCF is based on Yinson's share of total project earnings after payment of project borrowings and interest, while also benefiting from stable long-term contracted cashflow.

The pause in securing new FPSO contracts last year allows Yinson's balance sheet time to recover from hefty debts incurred in building four vessels in close succession. The Group is currently bidding for new contracts, which if successful, are likely to come at the end of this year at the earliest. Over the next three years, we expect adjusted debts (excluding non-recourse) to continue to rise in the near term, with gearing peaking at over 2 times. Adjusted OCF debt coverage will stay at about 0.06 times in the next two years and may improve thereafter.

The ratings continue to be supported by Yinson's positioning among the world's largest independent FPSO players. A strong track record of prompt FPS delivery and operations places the Group favourably in a sector exposed to significant execution and construction risks, with high barriers to entry. Yinson's FPS leasing contracts amounting to USD19.31 bil as at end-January 2024 span 7-25 years, providing stable long-term revenue and earnings. Its small number of charterers, however, exposes the Group to customer concentration risk.

Yinson owns and operates two solar plants in India, with a total installed capacity of 330 MW. The Group has set clear climate goals of reaching carbon neutrality by 2030 and net zero by 2050 by growing its renewable energy segment significantly and reducing the carbon footprint of its offshore operations. Its green technologies division is relatively small, with investments in nascent businesses and a modest fleet of offshore support vessels.