69 ANNUAL REPORT 2022 STRATEGY & OUTLOOK FINANCIAL REVIEW The Group applies Net Gearing Ratio (calculated as ‘Total Loans and Borrowings’ less ‘Cash and Bank Balances plus Liquid Investments’ divided by ‘Total Equity’) as a key indicator to manage its operation funding structure. This ratio increased to 1.24 times in FYE 2022 in tandem with the progressive execution of the FPSO Anna Nery project. This ratio will continue trending upwards until the beginning of 2023, when FPSO Anna Nery is expected to commence its 25-year lease tenure. Although our Net Gearing Ratio has increased, debt levels remain manageable. As at 31 January 2022, RM6,566 million of loans and borrowings are project financing loans for FPSO JAK, FPSO Helang, FPSO Anna Nery and Rising Bhadla 1 & 2 Solar Parks, which are structured to ensure smooth repayment over the course of the assets’ contracted periods. Some key features of Yinson’s project financing loans are as below: • Project financing loans are non-recourse to Yinson once operational with Yinson's guarantee being released from the project financing loan, which minimises the risk of these loans to Yinson’s liquidity. • 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. • Project financing loans for FPSO JAK, FPSO Helang and Rising Bhadla 1 & 2 Solar Parks are non-recourse. The project financing loan for FPSO Anna Nery is expected to become non-recourse in FYE 2024. In assessing the Group’s ability to repay its loans and borrowings, the Management refers to the Adjusted Net Debt/Adjusted Core EBITDA ratio. This ratio indicates the number of years’ profits that is needed to cover outstanding loans and borrowings. Management expects FYE 2023’s ratio to be higher than FYE 2022’s ratio of 3.85 times, as the FPSO Anna Nery project nears completion. During the construction of FPSO Anna Nery, this ratio is temporarily elevated as collections from its operations has not yet commenced whereas its project financing loan is being drawn to finance its construction. This increase in Adjusted Net Debt/Adjusted Core EBITDA ratio is manageable because FPSO Anna Nery’s project financing loan repayments are only scheduled to commence after first oil is expected to be achieved. As the Group continues to grow, we will continuously assess and determine the appropriate financing strategy for the Group to ensure an optimal mix of funding of debt and equity markets to support future projects. For further information on our management of our Financial Capital, including our capital strategy, funding and financing partners, our cash and liquidity management, and how we manage financial risks, please read the Financial Capital chapter in this Report. Financial capital, pg 137 CLOSING REMARKS Looking at our track record and our strong performance in FYE 2022, we are excited that Yinson is well-poised financially to execute our growth plans. Rest assured that Yinson does not take our stable financial position for granted. Rather, it is the result of the hard work put in from every area of our business to ensure that we responsibly handle the trust and confidence that has been placed in us by all our stakeholders. As a safeguard against complacency, we are determined to continue reinforcing our team, innovating and improving how we manage our financial capital in order to continue generating value for our stakeholders.
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