Fitch affirms Indonesia's Radiant at 'BBB(idn)'; Outlook stable
Wednesday, June 9 2010 - 03:56 PM WIB
Radiant's ratings reflect its long operating track record in the oil and gas services sector and its contract backlog of approximately IDR1.3trn, mainly for 2010 to 2012, providing moderate revenues and cash flow visibility. The ratings also factor in the company's customer base, which consists primarily of oil majors and large industrials that tend to have better credit profiles, resulting in reduced counterparty risks.
However, the company's ratings continue to be constrained by its relatively small scale of operations compared to its regional and global peers, as well as its dependence on the domestic market for its entire revenue is. The ratings are also constrained by the inherent volatility of some of Radiant's earnings and cash flows as it is heavily dependent on the oil and gas sector. Nonetheless, the agency takes comfort in the company's relatively steady cash flow from the operating support services division, which contributed approximately 63% and 55% of its 2009 consolidated revenue and gross profit, respectively. Another key concern is the company's venture into the upstream oil and gas industry, with the acquisition of PT Radiant Bukit Barisan, which has a 51% participating interest in a 30-year concession over the South West Bukit Barisan Block in West Sumatra in December 2008.
Fitch notes that the lower oil price environment since mid 2008 has resulted in the delay of some of Radiant's projects, which was reflected in a 12% decline in revenue in FY09 to Rp 1.04 trillion (FY08: RP 1.18 trillion). The lower revenue was also due to the Rupiah appreciation against the USD during the year, given that nearly half of Radiant's proceeds are in USD whereas the bookkeeping is done in Rp.
Nonetheless, Radiant was able to maintain its profitability as the company managed to secure higher margin contracts. This allowed Radiant to increase its EBITDA to Rp 93.8 billion in 2009 from RP 81.3 billion in 2008, resulting in an improved net debt/EBITDA ratio of 1.5x at end December 2009 from 2.2x at end December 2008. The agency notes that during the first quarter ending March 2010, Radiant's performance has declined slightly, resulting in higher net leverage ratio of 1.8x. However, with debt amortisation expected to proceed as planned using cash flows from operations, Fitch expects net leverage ratio to gradually improve. Furthermore, liquidity remains adequate supported by cash on hand of Rp 83.2 billion against short-term debt (including current portion of long-term debt) of Rp 46 billion at end March 2010. The liquidity is further supported by available undrawn uncommitted credit facilities of Rp 186 billion.
The Stable Outlook reflects Fitch's expectation that demand for oil and gas services will remain stable, enabling the maintenance of Radiant's performance. Given that the rating constraints are not factors that can be addressed in the near-term, a rating upgrade is not envisaged in the next 24 months. If deleveraging does not proceed as planned, potentially due to increased capex, acquisition and/or working capital requirements, and net debt/EBITDA is sustained at over 2.0x, a negative rating action may be warranted.
Established in 1984, Radiant is engaged in non-construction oil and gas services, namely operating support services, offshore drilling and production services, certification and inspection services, as well as environmental assessment and training. Radiant is 61.58% owned by PT Radiant Nusa Investama (RNI), a holding company of the Radiant Utama Group, which is involved in onshore drilling, personnel placement, property and coal trading businesses. In the quarter ending March 2010, Radiant recorded revenue of Rp 231 billion and EBITDA of Rp 18 billion. (end of release)