RAM Ratings reaffirms AAA debt ratings of Telekom and Hijrah Pertama

Published on 16 May 2013

RAM Ratings has reaffirmed the AAA long term ratings of Telekom Malaysia Berhad’s (“TM” or “the Group”) and Hijrah Pertama Berhad’s (“HP”) debt issues. TM’s ratings consider its strategic and prominent position within Malaysia’s telecommunications industry as well as its stable earnings and healthy debt-servicing capacity. Based on RAM’s rating methodology on government-linked entities, TM’s position is further solidified by the high likelihood of extraordinary government support in the event of financial distress. Given the back-to-back arrangement between TM and HP - whereby TM remains the legal obligor for HP’s Islamic Stapled Income Securities (“ISIS”) - the rating of the ISIS reflects that of the Group.

Instrument	Rating Action	Rating
Telekom Malaysia Berhad
Islamic Commercial Papers Programme and Islamic  Medium-Term Notes Programme with a combined  aggregate nominal value of up to RM2 billion  (2011/2026)	Reaffirmed	AAA/Stable/P1
Hijrah Pertama Berhad
RM2,925 million Islamic Stapled Income Securities  (2007/2018)	Reaffirmed	AAA/Stable/-

TM has maintained its leadership in the domestic fixed-line telephony sector, commanding 98% of the nation’s subscriber base. In 2008, the Government’s move to assign the nationwide deployment of the high-speed broadband network to TM rendered the Group the sole owner of the infrastructure, further strengthening its position in the fixed-broadband market.

Looking ahead, we expect TM’s broadband subscriber base to continue expanding steadily given its reliable connectivity and the nation’s penetration rate of 28.6% for household fixed broadband (end-2011: 24.5%). However, we also note that the broadband arena is becoming increasingly competitive amid the aggressive marketing efforts and constant initiatives of providers of wireless broadband services, in a bid to increase their coverage. In addition, the introduction of Long- Term Evolution this year could breathe new life into the wireless-broadband market. Despite this, TM still enjoyed commendable take-up for its broadband services last year, with a 7.4% y-o-y increase in its subscriber base to 2.01 million customers as at end-2012. This had in turn strengthened its data revenue, which will continue to skew the Group’s top-line mix from voice to non-voice services.

Media contact
Chinthamani Thanneermalai
(603) 7628 1013
chinthamani@ram.com.my

RAM Ratings reaffirms AAA debt ratings of Telekom and Hijrah Pertama

Published on 16 May 2013

RAM Ratings has reaffirmed the AAA long term ratings of Telekom Malaysia Berhad’s (“TM” or “the Group”) and Hijrah Pertama Berhad’s (“HP”) debt issues. TM’s ratings consider its strategic and prominent position within Malaysia’s telecommunications industry as well as its stable earnings and healthy debt-servicing capacity. Based on RAM’s rating methodology on government-linked entities, TM’s position is further solidified by the high likelihood of extraordinary government support in the event of financial distress. Given the back-to-back arrangement between TM and HP - whereby TM remains the legal obligor for HP’s Islamic Stapled Income Securities (“ISIS”) - the rating of the ISIS reflects that of the Group.

Instrument	Rating Action	Rating
Telekom Malaysia Berhad
Islamic Commercial Papers Programme and Islamic  Medium-Term Notes Programme with a combined  aggregate nominal value of up to RM2 billion  (2011/2026)	Reaffirmed	AAA/Stable/P1
Hijrah Pertama Berhad
RM2,925 million Islamic Stapled Income Securities  (2007/2018)	Reaffirmed	AAA/Stable/-

TM has maintained its leadership in the domestic fixed-line telephony sector, commanding 98% of the nation’s subscriber base. In 2008, the Government’s move to assign the nationwide deployment of the high-speed broadband network to TM rendered the Group the sole owner of the infrastructure, further strengthening its position in the fixed-broadband market.

Looking ahead, we expect TM’s broadband subscriber base to continue expanding steadily given its reliable connectivity and the nation’s penetration rate of 28.6% for household fixed broadband (end-2011: 24.5%). However, we also note that the broadband arena is becoming increasingly competitive amid the aggressive marketing efforts and constant initiatives of providers of wireless broadband services, in a bid to increase their coverage. In addition, the introduction of Long- Term Evolution this year could breathe new life into the wireless-broadband market. Despite this, TM still enjoyed commendable take-up for its broadband services last year, with a 7.4% y-o-y increase in its subscriber base to 2.01 million customers as at end-2012. This had in turn strengthened its data revenue, which will continue to skew the Group’s top-line mix from voice to non-voice services.

Media contact
Chinthamani Thanneermalai
(603) 7628 1013
chinthamani@ram.com.my

News Highlights - Week of 13 - 17 May 2013

******************************************************************************

News Highlights - Week of 13 - 17 May 2013

On 13 May, the State Bank of Viet Nam (SBV) cut its key interest rates for the second time this year, following six cuts in 2012. The refinance rate, discount rate, and overnight inter-bank lending rate were reduced by 100 basis points (bps) each to 7.0%, 5.0%, and 8.0%, respectively. In its meeting held on 14 May, Bank Indonesia's (BI) Board of Governors decided to hold its benchmark policy rate steady at a record-low level of 5.75%.

*     Real gross domestic product (GDP) growth in Japan rose 0.9% quarter-on-quarter (q-o-q) in 1Q13, up from 0.3% posted in the previous quarter. Growth was attributed mainly to the 0.9% q-o-q increase in private consumption, which accounts for approximately 60% of the economy. Malaysia's GDP grew 4.1% year-on-year (y-o-y) in 1Q13, slower than the 5.1% growth recorded in 1Q12 and 6.5% in 4Q12. Strong private consumption, which expanded 7.5% in 1Q13 compared to 6.2% in 4Q12, supported the economy amid slower public expenditure. In Thailand, real GDP growth moderated to 5.3% y-o-y in 1Q13 from 19.1% in 4Q12.

*     Growth in foreign direct investment (FDI) in the People's Republic of China (PRC) decelerated in April, rising 0.4% y-o-y to US$8.4 billion. FDI growth was 5.7% y-o-y in March and 6.3% in February.

*     Indonesia's current account deficit narrowed to US$5.3 billion (equivalent to 2.4% of GDP) in 1Q13, compared with US$7.6 billion (equivalent to 3.5% of GDP) in 4Q12, on account of an improved non-oil and gas trade surplus and reduced deficits in the services and income accounts. Malaysia's current account balance posted a surplus of MYR8.7 billion in 1Q13, compared with MYR22.9 billion in 4Q12, due to a lower trade surplus. In Singapore, non-oil domestic exports fell 1.0% y-o-y in April.

*     Singapore's retail sales fell 7.4% y-o-y in March, compared with a revised contraction of 3.0% in February. On a seasonally adjusted basis, retail sales in March decreased 5.4% month-on-month (m-o-m).

*     Personal remittances from overseas Filipinos rose 3.7% y-o-y in March to US$1.9 billion, the slowest monthly rate of growth since August 2009. Total remittances in 1Q13 reached US$5.6 billion, a 6.2% increase from the same period last year.

*     The government of Thailand raised THB15 billion from last week's auction of inflation-linked bonds maturing in March 2028 with a coupon rate of 1.25%. In the Philppines, the Bureau of the Treasury (BTr) announced plans to issue long-dated securities (10, 15, and 20 years) in its monthly bond auction in 3Q13 in response to demand for longer maturities.

*     Last week, PRC real estate developer Poly Property issued a US$200 million (5-year non-call) 3-year Reg S bond at a coupon rate of 4.75%.  Bright Foods also issued a US$500 million 5-year Reg S bond at a 3.0% coupon rate.  Want Want China sold a US$600 million 5-year bond at a coupon rate of 1.875%. Pertamina, a state-owned Indonesian energy firm, raised a total of US$3.25 billion from a dual tranche bond sale last week. The bonds, amounting to US$1.625 billion for each tranche, consisted of 10-year bonds with a coupon rate of 4.3% and 30-year bonds with a coupon rate of 5.625%.

*     Government bond yields fell last week for most tenors in Malaysia, Singapore and Viet Nam, and rose for most tenors in Hong Kong, China; Indonesia and the Philippines. Yield movements were mixed in the PRC, the Republic of Korea, and Thailand. Yields spreads between 2- and 10- year maturities widened in Hong Kong, China; Indonesia; the Republic of Korea; the Philippines and Viet Nam, while spreads were unchanged in the PRC, and narrowed in other emerging East Asian markets.  

******************************************************************************

MARC DOWNGRADES ITS RATINGS ON KINSTEEL BERHAD’S RM200 MILLION ISLAMIC DEBT PROGRAMMES TO MARC-3ID/BBBID; OUTLOOK NEGATIVE

May 15, 2013 -

MARC has downgraded its ratings on Kinsteel Berhad’s (Kinsteel) RM100.0 million Murabahah Commercial Papers/Medium Term Notes (CP/MTN) Programme and RM100.0 million Murabahah Medium Term Notes (MTN) Programme to MARC-3ID/BBBID and BBBID from MARC-2ID/A-ID and A-ID respectively. Concurrently, MARC has removed the ratings from MARCWatch Negative where it had been placed on April 17, 2013. The ratings outlook is negative. The lowered ratings reflect the group’s weaker-than-expected operating performance in the financial year ending December 31, 2012 (FY2012). The consolidated pre-tax losses during the past two years have resulted in elevated debt leverage ratios and will make it challenging for the group and Kinsteel to secure financing for its upcoming debt maturities. Overall, MARC considers Kinsteel’s liquidity profile to be rather weak and regards the recent decline in its cash position to be a key rating concern.

Kinsteel Group is an integrated steel manufacturer involved in the manufacture and trading of finished long steel products such as reinforced bars, wire rods and wire mesh. In view of the prolonged weak demand for its end products that has weighed heavily on its recent performance, the group has closed one of its three manufacturing plants. In addition, the performance of its upstream segment, which is undertaken by its subsidiary Perwaja Steel Sdn Bhd (Perwaja), had also suffered due mainly to raw material price volatility. Perwaja, which manufactures direct-reduced iron (DRI) and semi-finished steel products, the bulk of which is used for Kinsteel’s downstream operations, is in the process of constructing iron-ore concentration and pelletising plants which when completed would provide a buffer against iron ore price volatility and offer a reliable supply of pellets. Nonetheless, the RM230.0 million project was funded by borrowings which has led to higher group debt.

For FY2012, Kinsteel Group registered a consolidated pre-tax loss of RM236.1 million (FY2011: negative RM308.1 million) despite a marginal increase in revenue to RM2.1 billion (FY2011: RM2.0 billion). MARC observes that the group continued to be saddled with high inventory levels, the build-up of which began in 2010. The financial performance continued to be characterised by inventory write-downs amounting to RM122.0 million in FY2011 and RM90.6 million in FY2012. MARC notes that Kinsteel Group’s borrowings have remained high, increasing slightly to RM1,877.0 million in FY2012 (FY2011: RM1,845.8 million) while shareholders’ funds eroded to RM1,036.0 million (FY2011: RM1,316.7 million). As a result, the debt-to-equity (DE) ratio, on excluding loans from the government and a related party of RM182.8 million, worsened to 1.64 times at end-FY2012 (FY2011: 1.27 times).

At the company level, Kinsteel’s borrowings stood at RM658.5 million at end-December 2012 (FY2011: RM739.3 million), translating to a DE ratio of 1.73 times (FY2011: 1.95 times).  MARC observes that cash flow from operations (CFO) improved to RM308.9 million in FY2012 (FY2011: negative RM8.4 million), largely on account of net receivable collection. Nonetheless, Kinsteel’s cash balance declined to RM9.6 million (FY2011: RM31.2 million) due mainly to a heavy debt repayment of RM171.6 million during the year. Given Kinsteel’s very weak liquidity position in relation to its upcoming obligations under the rated facilities, MARC is concerned over the company’s ability to meet the repayment. Kinsteel has RM40.0 million CP/MTN notes maturing on August 28, 2013 and RM10.0 million MTN due on September 6, 2013 under a combined outstanding amount of RM100.0 million of rated facilities. In addition, its subsidiary Perwaja has a scheduled repayment of RM50.0 million of the RM110.0 million outstanding under its Murabahah Medium Term Notes (MMTN) programme on September 25, 2013.

The negative outlook reflects MARC’s view that Kinsteel will continue to meet challenges to generate sufficient liquidity to meet its financial obligations. The ratings could be lowered further if there is indication that financing for Kinsteel’s CP/MTN and MTN cannot be achieved ahead of their respective maturities and/or Kinsteel’s financial metrics continue to deteriorate in the coming months.

Contacts:

Ngiam Tee Wei, +603-2082 2268/ teewei@marc.com.my;

Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my;

Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my

Islamic investment fund law in the works (By IFN)

Islamic investment fund law in the works

Daily Cover

TUNISIA: The Tunisian parliament has approved amendments to a bill which was submitted by the country’s Finance Ministry, allowing for the creation of an Islamic Investment Fund. The draft law, which is expected to be submitted to the National Constituent Assembly in the coming weeks, comes as the country’s interest in issuing Sukuk piques following the formation of a technical committee within the Finance Ministry to explore the possibility of issuing Islamic instruments; with the first sovereign Sukuk issuance slated towards the end of 2013. Following the Arab Spring in 2011, Tunisia has become the poster child of political and developmental reform amongst other North African nations; with the country’s growth prospects predicted to reach 4%, after a minor revision from 4.5% earlier. Foreign direct investments into the country have almost doubled year-on-year to TND147 million (US$90.46 million) from TND77 million (US$47.38 million) in the first quarter of 2012. The country’s finance minister, Elyes Fakhfakh, also confirmed a growth in 2013 State Budget expenditures, on the back of an increase in subsidy expenses and the restructuring of public banks. Despite being a Muslim-majority country, Tunisia’s socioeconomic landscape is considered unique, as the country’s elected leader, Moncef Marzouki tries to create a balance between the Muslim majority and the wealthy secular minority. His job, political pundits have observed; is to reassure both parties that they can coexist, by writing a new constitution that “enshrines human rights while respecting Islam and ensuring both Tunisias have a voice in the political process.”