RAM Ratings reaffirms Binariang GSM's sukuk ratings, revises outlook to negative

Published on 23 December 2011
RAM Ratings has reaffirmed the AA3/P1 and A2 ratings of Binariang GSM Sdn Bhd’s (“BGSM” or “the Group”) Senior Sukuk and Junior Sukuk (collectively, “the Sukuk”). At the same time, the outlook on the Sukuk’s long-term rating has been revised from stable to negative. The Senior Sukuk consists of BGSM’s RM19 billion Islamic Medium-Term Notes Programme and RM2 billion Islamic Commercial Papers Programme. The Junior Sukuk refers to the Group’s USD900 million Cumulative Non-Convertible Islamic Junior Sukuk. BGSM is an investment-holding company with subsidiaries that are involved in the Malaysian and Indian cellular telecommunication markets.

The negative outlook reflects a decline in the Group’s financial profile over the last few years. Aircel Ltd (“Aircel”), the Group’s 74% subsidiary, has made hefty investments to support network rollout as well as Third Generation and Broadband Wireless Access spectrum acquisition costs in India. As these investments have resulted in substantially increased debt levels at Aircel and are not expected to generate strong earnings in the near term, this has in turn weighed heavily on the Group’s consolidated balance sheet and debt protection indicators. The deepening losses of Aircel, partly a result of higher cost of debt service, have also been compounded by the competitive telecommunications industry in India. The ongoing CBI investigations involving Aircel and continuing regulatory uncertainties affecting the industry may further exacerbate the current strain on Aircel’s operational and financial risks.

The management of BGSM has intimated that it will embark on a restructuring exercise to decouple Aircel from the Group; this is expected to be concluded in the next 9 months. Should the restructuring exercise not be completed within the suggested timeframe, the ratings of the Sukuk will have to be reassessed.

Meanwhile, BGSM’s ratings remain supported by the Group’s position as the largest mobile-services provider in Malaysia. Looking ahead, the steady profit performance and cash-generating aptitude of its Malaysian operations are expected to anchor the Group’s cash-generating ability. Dividends from the Group’s Malaysian operations are expected to continue supporting the annual profit and principal payments under BGSM’s Senior Sukuk (which currently has a fixed maturity profile up to 2022) as well as the annual profit obligations under its Junior Sukuk.

RAM Ratings will be publishing the Sukuk rating rationale in the next few days.

Media contact
Davinder Kaur Gill
(603) 7628 1118
davinder@ram.com.my