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CORPORATES
Table of Contents:
Summary
SUMMARY
1
CORPORATE PROFILE
2
SUMMARY RATING RATIONALE
3
RATING OUTLOOK
3
WHAT COULD RAISE THE RATING
3
WHAT COULD LOWER THE RATING 3
KEY RATING DRIVERS
4
KEY RATING CONSIDERATIONS
4
Strong market position supported by
protective regulations on local content
4
High revenue visibility with large
contracted order book in the next 2-3 years 5
Small operating fleet exposed to
geographic concentration and cyclicality in
oil and gas sector
6
Significant customer concentration
mitigated by strong counterparty credit
quality
7
High leverage position expected to improve
in the next 2 years
8
LIQUIDITY
9
GLOBAL PEERS: COMPARISON
WITH PARKER DRILLING, PACIFIC
DRILLING, ATWOOD OCEANICS,
SHELF DRILLING, HERCULES
OFFSHORE AND HILONG
11
MAPPING TO RATING
METHODOLOGY
12
APPENDIX I: APEXINDOS
HISTORICAL FINANCIAL SUMMARY
(AS ADJUSTED)
13
Analyst Contacts:
SINGAPORE
+65.6398.8308
Vikas Halan
+65.6398.8337
Vice President - Senior Analyst
vikas.halan@moodys.com
Rachel Chua
Associate Analyst
rachel.chua@moodys.com
+65.6398.8313
Philipp L. Lotter
+65.6398.8335
Managing Director - Corporate Finance
philipp.lotter@moodys.com
CORPORATES
Apexindos leverage in 2012 was high for its rating, as reflected by adjusted debt/EBITDA
of 4.3x, adjusted debt/capitalization of 67.4% and EBIT/interest of 1.9x. With three vessels
scheduled for certification and dry docking in 2013, we expect its credit metrics to remain at
similar levels this year, but to improve in 2014, such that adjusted debt/EBITDA will decline
below 4.0x and EBIT/interest will be at 2.5x.
Corporate profile
PT Apexindo Pratama Duta Tbk (Apexindo) is Indonesias leading provider and operator of rigs
for the oil, gas, coal-bed methane (CBM) and geothermal drilling industries. It has been in business
since 1984 and operates a fleet of 8 onshore rigs, 6 offshore rigs and one floating production
storage and offloading (FPSO) vessel.
The company is the only local offshore rig provider in Indonesia. For the last twelve months ended
in June 2013, Apexindo generated revenues totaling $237 million and EBITDA of $133 million.
The offshore segment contributed approximately 70% of revenues while the remaining 30% was
from onshore activities.
Listed on the Jakarta Stock Exchange, Apexindo is 87.3% owned by Apexindo International Pte.
Limited (unrated), which in turn is 96.1% owned by PT Apexindo Energi Investama (unrated), a
100% subsidiary of PT Aserra Capital (unrated).
EXHIBIT 1
Corporate Structure
PT Aserra Capital
99.99%
Others
3.93%
3.83%
96.07%
Public
8.88%
87.28%
As of 15 May 2013
Source: Company data
CORPORATES
Rating Outlook
The outlook on the rating is stable, reflecting our expectation that the company will refrain from
making any debt-funded acquisitions, and that it will continue to perform on all its contracts,
maintaining a high utilization level. The stable outlook also reflects our expectation that the firm
will successfully renew its contracts with high quality counterparties.
CORPORATES
High revenue visibility with large contracted order book for the next 2-3 years
Small operating fleet exposed to geographic concentration and cyclicality in the oil and gas
sector
Offshore
Unallocated
100%
90%
80%
70%
60%
75%
76%
75%
76%
72%
2008
2009
2010
2011
2012
50%
40%
30%
20%
10%
0%
Operating since 1984, the companys strong market position is further enhanced by its excellent
track record in safety and productivity.
Apexindo benefits from protective regulations in Indonesia that require upstream exploration and
production (E&P) companies to use suppliers with local content, meaning that such suppliers keep
at least 35% of their revenues in the country. As a local drilling contractor, the company easily
fulfills the regulatory requirement of local content. Moreover, it operates in a market where there
are a limited number of players with the capability to compete.
CORPORATES
Moreover, Apexindo would benefit further if the government increases the local content
requirement above 35% as planned, given international competitors would likely face far more
difficulties meeting the raised threshold.
High revenue visibility with large contracted order book for the next 2-3 years
Apexindos vessels are typically contracted for 2-3 years, which ensures a high level of utilization,
reduces day-rate volatility, and maintains a clear view of expected revenues and cash flows. As of
May 2013, 13 of its 15 vessels were contracted, with the value of its remaining contracts (as of
December 2012) at over 3.6x that of its revenue in 2012.
Of the 13 contracted vessels, 4 have contracts ending in 2013-14, 8 have contracts ending in 201516, while the remaining one will end its contract in 2017. The detailed contract expiries of its
vessels are shown in Exhibit 3.
EXHIBIT 3
2013
2014
2015
2016
O ffshore
M aera
Raisis
Raissa
Yani
Raniworo
Soehanah
SeaGood 101
O nshore
Rig 2
Rig 4
Rig 5
Rig 8
Rig 9
Rig 10
Rig 14
Rig 15
The company will face its highest levels of contract renewal risk and day-rate volatility during late
2015 and early 2016, when the contracts for its 2 jack-up rigs -- Soehanah and Raniworo -- are due
to be renewed. However, we draw comfort from its strong track record in securing and renewing
long-term contracts with key customers, owing to its strong safety record. Historically, its vessel
utilization rates have been high, with averages of approximately 56% and 89% for its onshore and
offshore segments, respectively.
CORPORATES
EXHIBIT 4
Offshore
FPSO
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2008
2009
2010
2011
2012
5-year average
However, the contract renewal process is a key risk for the company as each renewal is awarded
only after a tender process. Nonetheless, because the bids only qualify if they meet the localcontent requirement, and given that Apexindo is the only jack-up rig provider in Indonesia that can
meet the minimum 35% local content requirement, the company has a higher rate of success in the
tender process than its international peers.
Small operating fleet exposed to geographic concentration and cyclicality in the oil
and gas sector
With a fleet of 15 vessels generating annual revenues of $237 million (LTM June 2013), Apexindo
is one of the smallest contract drillers that we rate. Its small fleet heightens exposure to the
cyclicality of the oil and gas E&P industry. All but 2 of its rigs -- which are deployed for
geothermal drilling -- are used for oil and gas, and CBM exploration and development.
EXHIBIT 5
Rig Name
Type
Current Customer
Maera
Swamp Barge
Total
72,000
Raisis
Swamp Barge
Total
60,000
Raissa
Swamp Barge
Total
58,150
Yani
Swamp Barge
Total
60,000
Raniworo
Jack-up
Total
115,000
Soehanah
Jack-up
Total
155,750
SeaGood 101
FPSO
Santos
34,250
Rig 2
Onshore
Pan Orient
26,500
Rig 4
Onshore
Chevron
37,500
Rig 5
Onshore
VICO[1]
38,580
Rig 8
Onshore
Rig 9
Onshore
VICO[1]
38,000
Rig 10
Onshore
Supreme Energy
35,000
Rig 14
Onshore
Santos
18,900
CORPORATES
EXHIBIT 5
Type
Current Customer
Rig 15
Onshore
[1] VICO Indonesia is a joint venture between BP p.l.c. (A2 stable) and ENI S.p.A. (A3 negative)
Source: Company data
In addition, Apexindos entire fleet of vessels -- both onshore and offshore is deployed in
Indonesia, which means significant geographic concentration risk. Consequently, a slowdown in
E&P activity in the country or unfavorable changes in regulatory rules will adversely impact
operations and profitability.
However, current E&P activity in Indonesia is healthy and remains large relative to the scale of the
company. Furthermore, given its established customer relationships and strong market position, we
believe Apexindos geographic concentration will not result in a lowering of its utilization levels
and that the risk of reform of the current regulatory framework is low.
Apexindos fleet operates largely in a low-risk environment. The vessels are used in shallow
waters on the Indonesian continental shelf and are well-suited for the domestic exploration
industry. According to the independent consultant, Infield Systems Ltd. (unrated), about 83% of
offshore reserves in Indonesia lie in shallow depths of less than 500 meters. Furthermore, the fleet
profile is stable as the company is not actively looking to expand and has no vessels on order.
VICO
Chevron
Others
100%
90%
80%
70%
60%
50%
40%
72%
74%
2010
2011
62%
30%
20%
10%
0%
2012
Total has a 21-year relationship with Apexindo and ranks Apexindo as one of its top 10 contractors
globally in terms of safety.
CORPORATES
In addition, contract termination risk is limited for Apexindo, as Total is liable to pay 50% of the
day rate for the remaining period of contracts, and the company can then re-deploy its vessels for
other charters.
However, some of the key production-sharing contracts of Total in Indonesia are up for renewal in
2017, some of which may not get renewed, in which case the Indonesian state owned company
Pertamina (Baa3 stable) - may take over such contracts. Given that Apexindo has already been
drilling in such fields, it is likely that the drilling contracts will be renewed with the counterparty
replacing Total. Nonetheless any delay or failure in renewal of contracts would be negative for
Apexindo.
3.0x
2.5x
2.0x
1.5x
1.0x
0.5x
0.0x
2010
2011
2012
2011
2012
2.5x
2.0x
1.5x
1.0x
0.5x
0.0x
2010
CORPORATES
Apexindos credit metrics in 2013 should stay at levels similar to 2012 despite higher day rates on
its recently renewed contracts. This is because of combination of a) three of the companys 6
offshore vessels are due for blow-out-preventer certification and dry docking, which will reduce
utilization levels and b) higher borrowings post the proposed refinancing. Consequently EBITDA
will only marginally improve in 2013.
However, credit metrics will improve from 2014 as vessel utilization will improve and the higher
day rates take full effect, such that adjusted debt/EBITDA will decline below 4.0x and
EBIT/interest will be at 2.5x. We do not expect any material investments or acquisitions in the next
12-18 months.
Liquidity
Apexindos liquidity position is weak, but will improve materially after issuance of its proposed
bond. As of June 2013, it had cash and cash equivalents of $12.5 million with $375 million of debt
maturing within the next 12 months. The maturing debt includes $344 million outstanding under
the companys term loan facility and the remaining represents amount outstanding under its
IDR300 billion bond, which are both due in 2Q 2014.
The proceeds of the proposed bond will be used to prepay the term loan and local currency bond.
Once the bond is issued, the earliest debt maturity would be when the proposed bond matures.
Apexindo does not have other committed facilities.
EXHIBIT 9
Apexindo will have adequate liquidity if the proposed bond issuance is successful
600
500
USD millions
400
300
200
100
0
Cash
CFO
Proposed bond
Debt repayment
Capex
Excess
Other Considerations
Leveraged buy-out by Aserra
Apexindos leverage has increased from adjusted debt/EBITDA of 2.5x in 2010 to 4.3x in 2012.
This was as a result of leveraged buy-out of the company by PT Aserra Capital in 2011.
Apexindo was owned by Medco Energi (B2 stable) until 2008, after which it was sold to PT Mitra
International Resources Tbk, which made the acquisition using $525 million of borrowings, in
multiple tranches, through an intermediate holding company, Mira International Holdings Pte. Ltd.
CORPORATES
By 2009, tranches of debt at Mira had experienced default, and which were then bought by Aserra,
in the secondary market over the course of 2010 and 2011. Aserra funded these purchases by $102
million of its equity and by borrowing another $350 million through Apexindo. The defaulted debt
was then converted into equity in Mira, making Aserra the effective owner of Apexindo.
Prior to the formal completion of the acquisition, in order to use the funds raised by borrowings at
Apexindo, Aserra issued short-term notes through its subsidiaries PT Apexindo Energi Investama
(AEI) and Apexindo International Pte. Ltd. (AIPL), which were subscribed by Apexindo. Funding
for purchase of these notes was raised by sale and leaseback of the jack-up rig Soehanah and a
term loan from Standard Chartered.
The notes that mature in 2028 carry a fixed coupon of 8.5% per annum. Since the issuance of the
notes in 2011 and 2012, however, no interest payment has been received by Apexindo on these
notes. The face value of the notes has been increasing by the amount of the coupon. As of June
2013, Apexindo had $379 million of investment in the notes and interest receivable on the notes,
that is not yet converted into the notes, amounting to $9.2 million. Aserra plans a further
restructuring of the group that will result in a capital reduction of AIPL to AEI, and a merger of
AEI into Apexindo. Another result will be the elimination of the notes.
The refinancing exercise will repay the bank facility and the remaining proceeds for general
corporate purposes, including the repurchase or repayment of the IDR bonds on or prior to their
maturity. Beyond this, we do not expect the company to need further funding as the companys
capex will be lower than its cash flow operations, resulting in positive free cash flows.
This may result in shareholder-friendly actions such as high distributions or buybacks -- which
would be ratings negative. But we draw comfort from the restrictions imposed by the covenants
under proposed bonds.
Nonetheless, there is no further headroom for increase in debt at the current rating level and any
expansion will have to be funded by a combination of internal cash generation and new equity.
10
CORPORATES
Atwood
Oceanics
Hilong Holding
Parker Drilling
Shelf Drilling[2]
Hercules
Offshore
Pacific Drilling
(P)Ba3
Ba2
Ba2
B1
B1
B2
B2
Outlook
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Grid-Indicated Rating
Ba3
Baa1
Baa
Ba3
Ba2
B2
B1
14
10
11
40
38
50
Revenue (USDm)
209
787
359
678
Unavailable
710
638
EBITDA (USDm)
120
396
102
229
Unavailable
218
266
Assets (USDb)
0.8
2.9
0.7
1.3
1.4-1.5 [2]
2.1
4.9
755
2,600
Unavailable
Unavailable
1,660
680
3,400
3.6x
3.3x
Unavailable
Unavailable
Unavailable
1.0x
5.3x
2 [4]
1,600m
RMB1.5-2b
Unavailable
31m [3]
245m [5]
1,600m
Geographic concentration
High, in Indonesia
No
No
No
No
High, in Gulf of
Mexico
No
No
Yes in international
segment (46% of
revenues)
No
No
Debt/EBITDA
4.3x
2.2x
1.7x
2.4x
2.5x [2]
4.3x
8.5x
Debt/Capitalisation
67.4%
31.1%
31.3%
47.2%
60% [2]
50.1%
49.6%
EBIT/Interest
1.9x
7.8x
6.2x
2.3x
3.0-3.5x [2]
0.5x
1.0x
Scale
Order Book
Execution Risk
Qualitative Considerations
[1] All financial data and ratios are calculated using Moodys Standard Adjustments.
[2] Historical data for Shelf Drilling is not available as it acquired all its rigs from Transocean (Baa3 negative) on 9 September 2012. Selected financials based on our projections on a forward-looking basis are
provided.
[3] Rig activation capital expenditures
[4] Hercules Offshore owns a 32% stake in Discovery Offshore S.A., a newly established Luxembourg-based company established in 2011 to own two new-build Super A class jack-up rigs under construction at
Keppel FELS in Singapore.
[5] Capital expenditures and dry dock
11
CORPORATES
Aa
Baa
Ba
Caa
Business Profile
X
X
Grid-Indicated Rating
(P)Ba3
[1] All financial data and ratios are calculated using Moodys Standard Adjustments.
[2] Based on financial data as of 31 December 2012.
Source: Moodys Financial Metrics
12
CORPORATES
31-Dec 2010
31-Dec 2011
31-Dec 2012
Revenue
212
210
209
EBITDA
136
113
120
64.2%
53.8%
57.5%
EBITDA Margin
EBIT
84
67
71
EBIT Margin
39.8%
32.0%
33.9%
Total Assets
578
665
849
Total Debt
334
378
517
Cash
46
10
12
Capex
31
113
68
FFO
86
97
83
CFO
118
106
90
RCF
86
97
83
FCF
87
-7
21
25.9%
25.8%
16.1%
2.5x
3.3x
4.3x
62.2%
62.3%
67.4%
1.7x
2.0x
1.9x
RCF/Debt
Debt/EBITDA
Debt/Capitalization
EBIT/Interest
[1] All financial data and ratios are calculated using Moodys Standard Adjustments.
Source: Moodys Financial Metrics
13
CORPORATES
Authors
Vikas Halan
Rachel Chua
Editors
Barry Hing
Production Associate
Sarah Warburton
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14