RAM Ratings reaffirms AAA/P1 ratings of Malaysia Airports' RM3.10 billion sukuk

Published on 25 November 2011

RAM Ratings has reaffirmed the respective long- and short-term ratings of AAA and P1 for Malaysia Airports Capital Berhad’s (“MACB”) RM3.10 billion Islamic Medium-Term Notes Programme (2010/2025) and RM1.00 billion Islamic Commercial Paper Programme (2010/2017); both facilities have a combined limit of RM3.10 billion in nominal value and are collectively referred to as “the Sukuk”. The long-term rating has a stable outlook.

MACB is a special-purpose vehicle set up as a wholly owned subsidiary of Malaysia Airports Holdings Berhad (“MAHB” or “the Group”), to undertake the issuance of the Sukuk for the latter. The transaction ensures the Sukuk holders’ recourse to MAHB, via Ijarah payments and a Purchase Undertaking from MAHB for the Ijarah structure, and an Undertaking to Purchase by MAHB under the Commodity Murabahah structure. Given this, the ratings reflect MAHB’s credit risk.

MAHB is the exclusive 25-year concession holder that operates, manages and maintains Kuala Lumpur International Airport (“KLIA”). The Group also holds a separate 25-year concession to operate, manage and maintain all other Malaysian airports as well as short-take-off and landing ports (collectively referred to as “the Designated Airports”), with the exception of Senai International Airport in Johor .

The ratings reflect MAHB’s solid business profile, which is anchored by its position as the sole operator of all the 39 government-owned airports in Malaysia. This is underscored by the Group’s strong adjusted margin on operating profit before depreciation, interest and tax of around 35% for the past 4 years. Passenger traffic at MAHB’s airports continued trending upwards in 2010; it recorded a 12.7% increase that nearly doubled the average growth for 2006–2009. The rise was spurred by the strong growth in the low-cost-carrier segment. Elsewhere, MAHB enjoys a strong collaborative relationship with the Government given the Group’s critical role as the operator of almost all Malaysian airports.

Following the issuance of RM2.5 billion of IMTN, MAHB’s adjusted gearing ratio and adjusted funds from operations (“FFO”) debt coverage stood at 0.85 times and 0.21 times, respectively, as at end-December 2010; these were within expectations. Looking ahead, we note that MAHB’s capital expenditure (“capex”) has been revised upwards for the next 3 years. “The sum covers the construction of the new low-cost-carrier-terminal, the upgrading of Penang International Airport and the ongoing upkeep of its Designated Airports,” notes Kevin Lim, RAM Ratings’ Head of Consumer and Industrial Ratings.

Meanwhile, the Group’s management has expressed the intention of maintaining a gearing ratio of below 1 time. “As such, we expect MAHB to use a combination of debt and equity to fund its capex. In line with this, we anticipate MAHB’s adjusted FFO debt coverage to stay adequate at above 0.2 times, before improving to 0.5 times over the medium term,” adds Kevin Lim.

The ratings have factored in several challenges faced by MAHB. The Group’s operations are susceptible to event risk given that air traffic is vulnerable to external events. MAHB must also compete against other international airports within the Asia-Pacific region. Moreover, the Group’s performance is subject to regulatory risk. MAHB recently faced a temporary delay in the upward revision of its international passenger service charge as well as aircraft landing and parking charges, following outcry and lobbying from some quarters, including MAHB’s major customer, AirAsia. The Ministry of Transport subsequently allowed MAHB to proceed with the increased charges. Likewise, the Group’s ventures in India, Turkey, Maldives and China could face political and regulatory risks.

Media contact
Low Li May
(603) 7628 1175
limay@ram.com.my