Yinson Holdings overcame investors’ concerns over a protracted global downturn in the oil and gas industry with a smart liability management strategy that added to the development of Malaysia’s Islamic bond market.
Yinson TMC’s M$950m (US$230m) unrated senior perpetual non-call 15 sukuk, with Yinson Holdings as the guarantor, not only scored the longest call date on a ringgit-denominated perpetual bond, but was also the first Islamic hybrid to use the mudaraba structure.
The Malaysian company had one major objective – to reduce its gearing, freeing up funding to support its plans to bid for new projects.
By opting to sell its first ringgit-denominated perpetual bonds, Yinson obtained 100% equity accounting treatment without issuing new shares, thereby avoiding dilution for its shareholders while still cutting its debt ratio. It used the proceeds of the May 8 issue to refinance debt, sharply reducing its net gearing from 1.2x prior to the perpetual bond to 0.4x thereafter, gaining the room to take on additional funding for new projects.
Yinson had to overcome a few challenges to achieve that goal. As the world’s sixth-largest independent leasing company for floating production storage and offloading vessels, it had to convince investors that it could withstand a downturn at a time when other local oil and gas companies, such as Perisai Petroleum, were already in restructuring.
In addition, Yinson did not want its notes to be rated, even though unrated issues appeal to a smaller investor base. The company, together with joint lead managers AmInvestment Bank and Maybank, decided to go down the private placement route and targeted core investors in the pension fund and insurance community.
Yinson engaged the investors right from the start, creating an inclusive strategy that aimed to emphasise its healthy financial position and convince investors to accept the long call period, the longest ever for a ringgit-denominated bond – either conventional or Islamic.
Investors were comforted by Yinson’s solid order book and the free cashflow from its existing FPSO projects, which supported its repayment capability, as well as the 6.8% profit rate. A sinking fund account was also set up for an optional redemption on the call date.
To maximise the appeal to investors, the perpetual was structured on the sharia principle of mudaraba, a staple of the Islamic banking community and a well-known format in the dated sukuk market. All previous Islamic perpetuals sold in Malaysia came under the musharaka format, but Yinson’s advisers found the equity-like features in the mudaraba concept matched the senior perpetual structure well. It also did not require ring-fencing of any tangible assets, which further eased the execution process for the deal.