RAM Ratings reaffirms AA3/P1 ratings of Gamuda's Islamic securities

Published on 19 December 2011
RAM Ratings has reaffirmed the respective AA3 and P1 ratings of Gamuda Berhad’s (“Gamuda” or “the Group”) proposed 25-year RM800 million Islamic Medium-Term Notes Programme and 7-year RM100 million Islamic Commercial Papers Programme, as well as those of its existing RM800 million Islamic Medium-Term Notes Programme (2008/2028) and RM100 million Commercial Papers Programme (2008/2015). Both long-term ratings have a stable outlook. Each of the combined facilities will be capped at RM800 million at all times.

Gamuda and its subsidiaries are principally involved in civil engineering and construction, property development, tolling operations, and the operation and maintenance of water-treatment plants. “Gamuda’s solid reputation and track record of project-execution capability will continue to make it a strong contender for complex large-scale projects, both domestically and internationally. We believe the gradual decline in its order book following the substantial completion of its overseas projects will be turned around by the upcoming jobs under the Economic Transformation Programme, the Tenth Malaysia Plan and Budget 2012. The Group also derives some earnings diversity from its property developments and concession assets,” observes Shahina Azura Halip, RAM Ratings’ Head of Real Estate and Construction Ratings. Gamuda’s outstanding construction order book of around RM2.59 billion and RM1.01 billion of unbilled property sales (as at end-July 2011) should assure revenue stability through the next 2 years.

Gamuda’s ratings are moderated by the significant concentration and execution risks related to the Group’s projects. Presently, the electrified double-track railway project constitutes 85% of its order book. This heavy reliance on just a couple of projects (i.e. the electrified double-track railway project and the potential Klang Valley MY Rapid Transit tunnelling project) is exacerbated by execution and integration risks arising from the complexity of the work involved.

Meanwhile, Gamuda’s significantly lower leverage (its debt load is about 30% lighter than previously projected for fiscal 2011) is a result of the slower-than-expected regulatory approvals for its Vietnamese projects. Going forward, RAM Ratings anticipates a more gradual and conservative gearing up of the Group’s balance sheet as it moderates its property launches in Vietnam amidst the sluggish property market there. The Group’s debt burden is expected to peak at around RM2.56 billion in FY July 2013, with a net gearing ratio of 0.41 times. Over the next 2 years, its operating profit before depreciation, interest and tax debt cover and funds from operations debt cover will range around 0.20–0.25 times and 0.13–0.18 times, respectively.

Media contact
Chan Yin Huei
(603) 7628 1180
yinhuei@ram.com.my