Credit Update: Yinson Strong FPSO Growth with Capital Raise Amid Credit Strains

Highlight

• The global FPSO market is expected to grow at a 12.5% CAGR from 2025 to 2034, signalling strong industry momentum.
• Yinson has a strong contract backlog, providing stable revenue visibility through 2048.
• The company is largely shielded from short-term oil price volatility due to long-term, fixed-rate FPSO contracts.
• While current financial metrics reflect high leverage and weak interest coverage ratio due to ongoing project investments, the projects begin contributing to cash flow, Yinson is well-positioned for gradual deleveraging and a more favourable credit outlook over the longer term. We recommend investors holding the Yinson Perpetual bonds if they are seeking relatively higher yields.

Company Overview

Yinson Holdings Berhad is a Malaysia-based global energy infrastructure and technology company. 98% of revenue is derived from its Offshore Production & Offshore Marine segment, focusing on Engineering, Procurement, Construction, Installation & Commissioning (EPCIC) business activities and Floating Production Storage and Offloading (FPSO) leasing. The company operates across regions including West Africa, South America, Southeast Asia, and Europe.

Global FSPO Market Experiencing Strong Growth Momentum with Strong Contract Backlog

The Global FPSO market is experiencing strong growth momentum. According to Market Research Future (MRFR), the FPSO market was valued at USD 6.83 billion in 2024 and its projected to reach USD 22.20 billion by 2034, expanding at a compound annual growth rate (CAGR) 12.5% during the forecast period from 2025 to 2034.

The FPSO market is experiencing strong secular growth due to:

• Depletion of onshore oil reserves, pushing exploration into deepwater regions.
• Cost-effectiveness and flexibility of FPSOs in remote offshore areas.
• Increased investment in offshore oil & gas, especially in Brazil, West Africa, and the North Sea.

As of 31 March 2025, Yinson has secured a strong contract backlog of USD 19.4 billion, comprising USD 13.9 billion from ongoing contracts and USD 5.5 billion from projects on order. These long-term FPSO lease agreements extend up to 2048, primarily driven by operations in Brazil, Angola, and Ghana. This provides Yinson with stable and recurring cash flows, supporting long-term debt repayments and mitigating short-term liquidity risks.

Source: Yinson Holdings Berhad, iFAST compilations. Data as of 31 March 2025.

Business Model offers a buffer against Short-term Oil Price Volatility

The International Energy Agency (IEA) has cut its 2025 global oil demand growth forecast by 300,000 barrels per day, lowering it to 730,000 barrels per day in its April 2025 report. This reflects a significant slowdown in demand growth amid rising trade tensions and a weaker global economic outlook following new U.S. tariffs. Demand is expected to decline further in 2026, driven by increased electric vehicle (EV) adoption, especially in China. Brent Oil prices have dropped at 10% from USD 66.83 per barrel as of 21 April 2025 from USD 74.64 at end-2024. Additionally, the IEA reduced its U.S. supply growth forecast due to lower prices and higher production costs.

Yinson’s business model offers a buffer against short-term oil price volatility, as its FPSO contracts are structured with long-term fixed compensation rates, which ensure predictable and stable revenue. While the shift in oil demand dynamics could affect future FPSO tenders, resulting in fewer new FPSO tenders. While this doesn’t affect existing lease cash flows, it may slightly impact Yinson’s future growth pipeline. We believe Yinson is well-positioned to navigate these challenges and maintain steady progress towards deleveraging and improving free cash flow over the long term.

Counterparty Risk should be Low, given Petrobras’s Strong Profitability and Financial Capability

A significant 44% of Yinson’s current orderbook is attributed to Petrobras, Brazil’s state-owned oil giant. According to Petrobras’s 2024 annual report, its total cost of production (CTPP) is USD 36.5 per barrel, which is significantly below the current oil price of USD 66.83 per barrel, indicating a healthy profit margin of about 45%. This implies that Petrobras is likely to remain profitable and financially capable of honoring its FPSO lease payments, even in a weaker oil market.

Yinson’s contracts are structured with strong safeguards against early termination, including compensation mechanisms that activate if a charterer terminates a contract prematurely. These mechanisms typically cover the present value of lost future revenue and, in some cases, can exceed the outstanding project loan. For example:

• FPSO Allan: The charter was terminated early on 29 January 2019 by CNR International due to reservoir underperformance, ahead of the original expiry date of 30 April 2019. Yinson received confirmed early termination compensation.
• FPSO PTSC Lam Son: The charter was terminated on 30 June 2017, and Yinson received an early termination payment that exceeded the outstanding project loan. This payment was fully received in the first quarter of FYE 2019.

These case highlight Yinson’s robust contractual framework, which significantly reduces financial risk from unexpected contract cancellations and provides assurance regarding the stability of future cash flows.

Improvement in Operating Margin

Shown as Table 1, revenue declined from RM11.6 billion to RM7.6 billion in 2025 due to transition from EPCIC phase to FPSO lease phase. As FPSO Maria Quitéria and FPSO Atlanta achieved first oil on 15 October and 31 December 2024, respectively, and FPSO Agogo nears completion.

However, the operating margin improved from 23% to 30% in 2025, reflecting lower construction progress led to reduced EPCIC costs. Overall, project progress remains in line within Yinson expectations.

Table 1: Key Performance Indicator

Despite Aggressive Leverage, Improving Debt Repayment is Expected Upon Full Lease Revenue

Shown as Table 2, Yinson’s credit profile faced pressure in 2025 during a capital-intensive phase, with a slight decline in total debt, but a marginal increase in net debt due to a drop in cash and bank balances, from RM3.06 billion to RM2.68 billion. This decline was primarily due to a RM715 million forex translation loss, which also eroded shareholders’ equity. As a result, Yinson’s net gearing ratio rose to 281%, up from 243% the previous year, significantly higher than peer SBM Offshore’s 139%, indicating more aggressive leverage.

The increase in net debt was largely driven by Yinson’s strategic expansion efforts and the issuance of a USD 500 million bond in April 2024, aimed at refinancing existing loans and supporting general corporate needs. During this period, heavy investments in the construction of FPSO Maria Quitéria, Atlanta, and Agogo were largely funded by debt. With the completion of Maria Quitéria and Atlanta, and Agogo nearing first oil, revenue from the EPCIC phase tapered off in FY25.

Despite this project progress, continued capital expenditures have elevated financing costs, primarily due to increased drawdowns on Yinson’s facilities to support project execution. Notably, the interest coverage ratio declined from 2.73 times to 1.74 times, indicating some concerns on the interest payment ability.

As at 31 January 2025, Yinson held RM2.7 billion in cash. As shown in Chart 1, the company has 51% debt maturity after or on 2030 (including perpetual debts), showing its ability in borrowing long-term debts and good maturity profile. While approximately 37% of total debt, amounting to RM6.7 billion, is concentrated in 2026 and 2027, we believe that Yinson is well-positioned to manage these maturities through refinancing initiatives.

Chart 1 Yinson’s debt maturity profile

Yinson’s refinancing ability remains strong over the short- to medium-term, supported by several factors:

• As at 31 January 2025, Yinson had RM3.2 billion in undrawn borrowing facilities, comprising RM3.0 billion in project term loans and RM0.2 billion in revolving credit. Additionally, the Group had RM1.2 billion available under its perpetual securities programme and had successfully placed a USD 500 million bond in 19 April 2024 (equivalent to RM2,363.7 million), partially utilised to refinance a RM2 billion corporate loan. Combined with the RM2.7 billion in cash, Yinson’s total available liquidity stood at RM9.1 billion, providing ample coverage against the RM6.7 billion debt maturity concentration in 2026 and 2027.

• As at 31 January 2024, RM9.6 billion of Yinson’s borrowings were project financing loans tied to its FPSO and solar park assets. These loans are structured to become non-recourse upon project commencement, with Yinson’s guarantee being released once the projects are operational, thereby reducing corporate liability and mitigating refinancing risks. As of that date, RM4.2 billion of borrowings had already transitioned to non-recourse status. The project financing lenders are only entitled to repayment from cash flows of the projects the loan is financing, and not from any other assets of Yinson.

• As at 31 January 2025, Yinson secured a USD 1 billion equity investment from global institutional investors namely Abu Dhabi Investment Authority (ADIA), British Columbia Investment Management Corporation (BCI), and RRJ Capital reflecting strong market confidence in Yinson’s long-term growth prospects. This investment includes an option to upsize to USD 1.5 billion within 24 months, offering additional financial flexibility and reducing future reliance on debt financing.

Looking ahead, the commencement of FPSO Agogo and the full lease revenue recognition from FPSO Maria Quitéria and Atlanta are expected to further enhance cash flow stability and reduce credit pressures starting from FY2025 and FY2026. Evidence of this transition is shown by the 63% increase in finance lease payments received, from RM0.93 billion in FYE 2024 to RM1.5 billion in FYE 2025, driven by FPSO Maria Quitéria and FPSO Atlanta moving from EPCIC phase to the lease phase. These assets now generate stable recurring income, strengthening debt repayment capacity and offering greater predictability for bondholders.

Table 2: Key Credit Metrics

Overall, Yinson stands out as a leading player in the expanding FPSO market, underpinned by a substantial USD 19.4 billion contract backlog and long-term leases that ensure stable and predictable revenue. The company’s business model provides insulation from short-term oil price volatility, and its strong relationships with key clients such as Petrobras further reinforce its market position.

While current financial metrics reflect high leverage and weak interest coverage ratio due to ongoing project investments, these are expected to improve as major projects FPSOs Maria Quitéria, Atlanta, and Agogo reach completion. As these assets begin contributing to cash flow, Yinson is well-positioned for gradual deleveraging and a more favourable credit outlook over the longer term.

Recommendation

The company’s outstanding issuance of RM1 billion under the YNSMK 5.550% 07Dec2026 Corp (MYR) a MYR bond maturing in December 2026 is viewed positively. With a maturity of 1 year and 8 months remaining, and given Yinson’s proven refinancing avenues and upcoming operational cash flows, the company is well-positioned to meet its repayment obligations in a timely manner.

We recommend investors hold Yinson’s perpetual bonds if they are seeking relatively higher yields, as the bonds currently offer an attractive current yield of 7.1% and yield to next call of 5.8% (shown as Table 3).

Table 3: Yinson’s Perpetual bonds

Yinson has the option to call the perp in March 2029, with the coupon reset to around 8.3% (based on the current estimation) if non-call, which is slightly higher than the current coupon of 7.5%, making it less incentive to call the perps. Nevertheless, the company’s debt maturity profile indicates lower debt repayment in 2029, potentially making a certain possibility to call the perp eventually.

While it is hard to predict the call probability at this moment, Yinson’s strong order backlog also supports its ability to meet coupon payments in the short to medium term. Investors should consider the non-call event in 2029 as the base case scenario.

Key Risks

• Refinancing Risk: Yinson is exposed to refinancing risks. If the company is unable to secure refinancing for its maturing debt, especially during an industry downturn or periods of tight credit conditions, it could face severe liquidity pressures.
• Weaker Oil Prices and Demand: The fluctuation and recent weakness in global oil prices have negatively impacted Yinson’s revenue streams. As a company primarily operating in the oil & gas sector (especially through its FPSO business), reduced demand for oil affects project economics and long-term viability.
• Contract terminations: Yinson relies heavily on long-term charter and EPCIC contracts for recurring revenue. This exposes the group to high counterparty risk, as any client default especially during an oil and gas downturn could lead to significant cash flow disruptions, heighten liquidity pressure and difficult to payback the debt.

Declaration

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.