RAM Ratings reaffirms the AA2 and A1 ratings of Dialog Group debt issues

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KUALA LUMPUR (December 10): RAM Ratings reaffirmed the AA2 / Stable and A1 / Stable ratings of Dialog Group Bhd senior medium-term Islamic bonds of RM 3 billion and RM 3 billion of perpetual subordinated Islamic bonds.

The reaffirmation, the rating agency said, reflects an expected upturn in Dialog’s operational performance over the medium term, supported by its strong commercial positions in tank terminals in the mid-segment of the oil and gas industry, and its businesses. engineering, procurement, construction and commissioning. (EPCC) in the downstream segment.

“We expect Dialog’s balance sheet and debt coverage to remain favorable to ratings,” RAM Ratings analysts Ben Inn and Thong Mun Wai said in a statement.

They noted that the group’s profits in the mid-segment and more modest oilfield rejuvenation operations in the upstream segment had remained relatively stable despite the Covid-19 pandemic.

However, Dialog’s revenue and pre-tax profit fell to RM 1.61 billion and RM 583.6 million for the fiscal year ended June 30, 2021 (FY21), from RM 2.3 billion. and RM 747.28 million for FY20, largely driven by a more cyclical downstream segment.

“The protracted pandemic has had a significant impact on the progression of his secure EPCC jobs, delaying the start of new projects. Supply chain disruptions triggered by the global contagion have further contributed to rising raw material costs, while border closures have delayed the finalization of projects.

“In the face of uncertainties, Dialog has been cautious in evaluating and accepting contracts in order to preserve its profit margin and reputation for prompt delivery. We expect a gradual recovery in its operational performance.

“The lifting of restrictions would allow existing contracts to accelerate. The start of large projects in the integrated oil complex of Pengerang should also benefit the group from a fiscal point of view. [year] 2023, ”analysts wrote.

Noting that Dialog’s ratings remain anchored by stable earnings, supported by long-term contracts across the oil and gas value chain, RAM Ratings said the strong mid-segment of the group has enabled the group to withstand the impact of the pandemic.

“Considering Dialog’s expansion into the mid-segment, total debts have continued to increase, amounting to RM 2.21 billion at the end of June 2021 (end of June 2020: RM 1.93 billion). The gear, however, remained robust at 0.45 times.

“As the group maintained a large cash balance, net debt was just as low by 0.15 times. Due to lower earnings and cash flow generation during FY21, debt coverage of funds from operations (FFOs) (including dividends received) slipped to 0.26 times ( FY20: 0.33 times).

“Dialog’s debts could reach 3.2 billion ringgit by the end of June 2024 to finance the growth of the company. Its balance sheet will remain solid, with gearing and net gearing remaining respectively below 0.55 times and 0.4 times on the same date. FFO debt coverage (including dividends) could decline this year but is expected to improve to exceed 0.30 times in fiscal years 2023 and 2024, ”the rating agency said.

However, RAM Ratings warned that “rapid expansion, especially on multiple fronts and into new businesses, will increase execution risk and expose [Dialog] to unknown dangers ”.

The agency said that despite Dialog’s continued search for new investments to expand its upstream, mid-range and downstream segments, the oil and gas group has yet to invest in new businesses that do not meet its criteria, stressing its financial prudence, his aversion to risk and his measured approach to moving into new businesses.

Dialog shares lost two sen to RM 2.45 in afternoon trading, giving the group a market cap of RM 13.82 billion.


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