| HAL Offshore Limited | ||||||
| 'CRISIL A/CRISIL A1' assigned to Bank Debt; Ratings placed on 'Watch Developing' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL A/CRISIL A1’ ratings to the bank facilities of HAL Offshore Limited (HAL) and placed it on ‘Rating Watch with Developing Implications’.
The ratings centrally factor in the established market presence of the company in providing multi support vessels (MSVs) on a charter hire basis to offshore exploration & production (E&P) players in India and its growing presence in the EPC services segment. The ratings also take comfort from the long-term contracts executed for chartering the MSVs and the strong order book position for the EPC services business, which provides a medium-term revenue visibility. The company has a healthy financial risk profile too, with a net debt free position maintained as on September 30, 2021.These strengths are partially offset by its exposure to client concentration risks and susceptibility of operating performance to fluctuations in crude oil prices which are inherently volatile.
CRISIL Ratings has placed the rating on ‘Watch Developing’ owing to an announcement by its listed subsidiary, Seamec Ltd. (Seamec; ‘CRISIL A; Placed on ‘Rating Watch with Developing Implications’) On November 02, 2021, Seamec’s board approved a proposal of restructuring its business with its parent HAL Offshore Ltd. As on September 30, 2021, HAL holds a 70% stake in Seamec. The proposal is in its initial stage and the structure is not finalised. Accordingly, the impact of this restructuring on the credit risk profile of HAL is currently not ascertainable. The watch will be resolved once details of the structure and its timelines are known and its subsequent impact on HAL’s credit risk profile can be ascertained. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has taken a consolidated view and combined the business and financial risk profiles of HAL and its subsidiaries, as these entities are in a similar line of business and have strong operational and managerial linkages.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths Established market player in the vessel hire business HAL alongwith its subsidiary Seamec, has established its market presence in providing MSVs on a charter hire basis to offshore E&P players in India, namely Oil & Natural Gas Corporation Ltd. (ONGC). These services continue to be of importance to E&P players, considering the increased focus on enhancing the output from domestic oilfields and ageing assets. While there could be continued requirement for existing owned vessels, future growth opportunities from this segment could be limited. HAL is accordingly focusing on expanding its business presence in the EPC services segment.
Comfortable operating performance The long-term contracts executed to charter MSVs (owned or leased), provides medium-term visibility on expected revenue from this segment. The vessel hire services business contributes to about 60% of total operating revenue, wherein healthy operating margin of 50-60% is earned on the owned fleet. Both HAL and Seamec are in the process of replacing their aged vessels, which would then reduce the redeployment risk. To further diversify its revenue, HAL has ventured into the EPC services segment, which generates operating margin of 17-20%.
The overall revenue and operating margins are, however, susceptible to redeployment risk associated with vessels that are deployed on a spot basis.
Healthy financial risk profile HAL’s financial risk profile is driven by comfortable gearing and adequate liquidity. Against the outstanding debt of Rs 219 crore, HAL has maintained cash balance of Rs 771 crore as on March 31, 2021 and is thus a net debt-free company. The financial metrics are comfortable, with gearing of 0.17 time and interest coverage ratio of 18.27 times as on March 31, 2021. Even though both HAL and Seamec are in the process of replacing their aged fleets, the liquidity available in the books should be sufficient to fund this capex and, hence, dependence on external funding is expected to be low.
Weaknesses Exposed to client concentration risk The diving support vessels (DSV) services are provided for offshore oilfields in India, exploration rights for which are majorly owned by ONGC. This exposes HAL to client concentration risk. While having a strong client is beneficial to the company in terms of receiving timely payments, it could reduce the negotiation ability of the company while contracting its fleet. Over the years, HAL has been focusing on increasing its presence in the EPC services business which should gradually reduce client concentration risk.
Susceptibility of charter rates to inherent volatility in crude oil prices Profitability and cash flow in the offshore business depend on offshore charter rates, which are influenced by offshore and deep-water expenditure by oil majors. Offshore and deep-water block investments, which are larger than those in onshore blocks, are highly sensitive to crude oil prices. With slowdown in global oil and gas E&P capex, demand for offshore equipment’s declined, resulting in a fall in charter rates for offshore vessels and rigs by more than 50% in the past six years. However, charter rates of the vessels deployed by HAL have remained stable in the past, despite fluctuations witnessed in crude oil prices. |
Liquidity: Strong At a consolidated level, HAL had cash and cash equivalent of Rs 771 crore as on March 31, 2021. The company is expected to generate cash accrual of Rs 350-400 crore in fiscals 2022 and 2023. The annual accrual generated as well as the surplus liquidity maintained, would be sufficient to meet its near-term annual debt obligation of Rs. 70 crore and Rs 32 crore, respectively, in fiscals 2022 and 2023. Considering sufficient liquidity maintained, the company has low dependence on working capital funding. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company Incorporated in 1996, as part of the MM Agarwal group, HAL is an end-to-end solutions provider of underwater and EPC services to the Indian oil and gas industry. Over the years, it has developed a diversified portfolio for undertaking turnkey projects involving sub-sea and marine services and as an EPC contractor. HAL’s services are certified by independent agencies such as the American Bureau of Shipping (ABS), DNV, LR as per requirements of the client.
HAL holds a 70% stake in Seamec, with the balance held by the public. The company operates in two distinct verticals of the shipping business - offshore support & services and bulk carrier charter business. |
Key Financial Indicators (Consolidated)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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This Annexure has been updated on 14-Dec-2021 in line with the lender-wise facility details as on 14-Dec-2021 received from the rated entity.
Criteria Details
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