RAM Ratings reaffirms AAA rating of Danga's RM10 billion Multi-Currency Islamic Securities Programme

Published on 10 October 2011
RAM Ratings has reaffirmed the AAA rating of Danga Capital Berhad’s (“Danga”) RM10 billion Multi-Currency Islamic Securities Programme (“ISP” or “the Islamic securities”); the long-term rating has a stable outlook.
The rating reflects the credit strength of Khazanah Nasional Berhad (“Khazanah” or “the Company”), in its role as the Purchase Undertaking Obligor in this transaction. Proceeds from the ISP will be utilised to purchase pools of identified Shariah-approved shares and/or assets from Khazanah. The Company will top up any shortfall in the income generated by the Musyarakah venture; it has also undertaken to purchase the specific portfolio units from Danga at a pre-agreed price upon maturity or a dissolution event.

“Khazanah’s credit profile hinges on its strategic position as the investing fund of the Malaysian Government. This accords it superior financial flexibility in terms of access to the capital markets, supported by the quality of its diversified portfolio,” notes Siew Suet Ming, RAM Ratings' Head of Structured Finance Ratings. Given the Company’s strategic role, RAM Ratings believes that the likelihood of an extraordinary support from the Malaysian Government, if required, is very high.
Khazanah’s debt-servicing aptitude is primarily supported by dividend receipts, equity divestments and, to a smaller extent, its refinancing ability. The Company’s top line rebounded to RM5 billion in fiscal 2010 (+45.6%), supported by more robust dividend income and divestment gains. However, its profit performance was affected by RM2.1 billion of impairment losses, which suppressed its return on capital employed to 3.2% (fiscal 2009: 3.8%). Looking ahead, we expect Khazanah’s short-term financial performance to be subdued, given the uncertain global financial and economic landscapes.

As at end-2010, Khazanah’s balance sheet has a reasonably high level of borrowings at RM36 billion. Excluding amounts owed to related companies, its gearing ratio stood at 1.7 times as at the same date. On a more positive note, its operating profit before depreciation, interest and tax debt coverage broadened from 0.08 times to 0.13 times over the same period, underpinned by its sturdier top line. Looking ahead, Khazanah is likely to stay highly leveraged over the medium term as it may not be able to quickly monetise its new investments given their long gestation periods. Notably, the Company received a RM3 billion equity infusion from the Malaysian Government this year, as part of the RM10 billion of funding for Khazanah under the Second Stimulus Package (announced in 2009); its gearing level is estimated to have eased to about 1.6 times following this equity injection.

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Peter Su
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petersu@ram.com.my