Moody’s Investors Service has assigned a provisional (P)B1 corporate family rating (CFR) to Hibiscus Petroleum Bhd (Hibiscus). This is the first time Moody’s has assigned ratings to Hibiscus.
“The (P)B1 CFR reflects Hibiscus’ credit profile incorporating the proposed acquisition and the funding plan. The provisional rating benefits from the company’s strong credit metrics post-acquisition, but is constrained by Hibiscus’ small, albeit improving, the scale of production and reserves with significant geographic concentration, modest reserve life and exposure to volatile oil prices,” says Hui Ting Sim, a Moody’s Analyst.
At the same time, Moody’s has assigned a provisional (P)B1 rating to the proposed USD-denominated senior secured bonds to be issued by Hibiscus Capital Limited, a wholly-owned subsidiary of Hibiscus. The proposed bonds are irrevocably and unconditionally guaranteed by Hibiscus and some of its subsidiaries and are secured by capital stock of Hibiscus Capital Limited, rights in the interest reserve account and rights in the escrow account.
The ratings are provisional and dependent on the successful completion of Hibiscus’ planned acquisition of a portfolio of oil and gas assets in Malaysia and Vietnam (Repsol Malaysia) from Repsol S.A. (Baa2 stable) and its proposed bond issuance.
Proceeds from the proposed bond will be initially kept in an escrow account and will ultimately be used to fund the planned acquisition and other general working capital purposes. Should the acquisition of Repsol Malaysia fails to be complete, Hibiscus Capital Limited will redeem the bond in full along with an early redemption premium of 1% and accrued interest which will mostly be funded by proceeds in the escrow account.
STABLE
On 2 June 2021, Hibiscus announced that it will acquire Repsol Malaysia for $212.5 million before working capital adjustments. In addition, Hibiscus will also take over the contingent tax liability and net decommissioning liability with an estimated total of around MYR550 million as part of the transaction. The proceeds from the proposed bonds will provide a cushion to absorb these additional payments in case they materialize.
The transaction is subject to regulatory approval from Petroliam Nasional Bhd (PETRONAS, A2 stable) and Vietnam Oil and Gas Group (PetroVietnam), as well as approval from Hibiscus’ shareholders. Hibiscus expects to close the transaction by the end of this year.
“While the acquisition will be transformative and involve a degree of execution risk, but given that the assets being acquired are in and around Malaysia, we view such risks to be partly mitigated by management team’s track record of operating in the region and its recent history of
being able to transition operatorship,” adds Sim.
