MARC DOWNGRADES RATINGS OF SUPER SENIOR B, SENIOR, MEZZANINE AND SUBORDINATED CLO BONDS ISSUED BY PRIMA UNO BERHAD

Jan 31, 2012 -

MARC has downgraded its rating on Prima Uno Berhad’s (Prima Uno) RM335 million Super Senior B primary collateralised loan obligation (CLO) bonds to D from A-. Furthermore, the C ratings on the remaining classes of RM190 million Senior, RM40 million Mezzanine and RM95 million Subordinated CLO bonds have been downgraded to D. At the same time, MARC has removed its AAA rating for the RM290 million Super Senior A CLO bonds following early redemption of its outstanding amounts on November 25, 2011. Prima Uno is the special purpose company that was established to issue the CLO bonds backed by a portfolio of newly originated unsecured loans.

The downgrades for the respective classes reflect Prima Uno’s failure to make full payment of outstanding principal on their maturity date of January 26, 2012. MARC received confirmation from the facility agent that RM253.74 million of Super Senior B bonds were redeemed, representing a partial redemption of 75.7% of its outstanding principal amount. The facility agent also confirmed that there were no principal redemptions for the Senior, Mezzanine and Subordinated bonds on their maturity date.

As of the date of this press release, only 8 of the 33 obligors comprising the loan pool have repaid their outstanding principal in full while two obligors made partial principal repayment. There have been no recoveries to date in respect of the earlier defaulted loans.

Following the downgrades, MARC will no longer conduct any rating surveillance on the CLO bonds’ ratings.

Contacts:
Ruben Khoo, +603-2082 2265/ rubenkhoo@marc.com.my;
Sandeep Bhattacharya, +603-2082 2247/ sandeep@marc.com.my.

Indonesia: Surge in electronics (by OXFORD BUSINESS GROUP)

See http://www.oxfordbusinessgroup.com/: Rising demand is expected to have seen consumer electronics sales in Indonesia reach IR28trn ($3.1bn) in 2011, according to the country's producers association. While the figure underlines healthy growth in the sector, industry leaders say improved incentives and better infrastructure could lead to faster progress.

MARC AFFIRMS ITS B RATING ON DUTALAND BERHAD’S OUTSTANDING REDEEMABLE UNSECURED LOAN STOCKS

Jan 27, 2012 -

MARC has affirmed its rating on DutaLand Berhad’s (DutaLand) outstanding RM20,649,024 Redeemable Unsecured Loan Stocks (RULS) at B with a stable outlook. The rating action incorporates DutaLand’s improving operating performance, underpinned by a higher contribution from its plantation division that has offset weaker earnings from its property development activities, and its reliance on asset disposals to generate liquidity to meet its significant financial commitments.

DutaLand’s major property project, the 73-acre Kenny Heights Development, which is located in the Sri Hartamas vicinity in Kuala Lumpur and jointly undertaken with a related company, Olympia Industries Berhad, has seen slower-than-expected progress due partly to liquidity constraints. As of date, only one project consisting of 49 units of 4-storey villas with a gross development value of RM216.0 million was completed and handed over in April 2011. The first phase of its subsequent project, comprising two high-end condominium towers, has been delayed from an initial launch date in 1Q2011. MARC understands that the company has sold only 28 units of 168 units in the first tower through a soft launch, translating to a take-up rate of about 17% as of date. MARC observes that weakening market sentiment for the high-end residential segment in the Klang Valley could pose near-term challenges for DutaLand’s property development division.

MARC notes that DutaLand had planned to sell its sole plantation asset consisting of 11,978 hectares of oil palm plantation in Sabah to an IOI Corporation Bhd sub-subsidiary for RM830.0 million. However, the effort to significantly boost its liquidity position had failed following a mutual cancellation of the sales-and-purchase agreement in November 2011. Meanwhile, DutaLand continues to depend heavily on its plantation division to generate meaningful earnings. For financial year ended June 30, 2011 (FY2011), the plantation division recorded a sharp increase of 80% in revenue to RM56.0 million (FY2010: RM31.1 million) and a threefold increase in operating profit to RM27.6 million (FY2010: RM9.0 million) due to improved prices for fresh fruit bunches (FFB) and an increase in the production output of FFB to 88,139 metric tonnes (MT) (FY2010: 70,840 MT). Nonetheless, MARC notes the underperformance of its oil palm plantation relative to its peers: DutaLand’s average FFB yield of 10.59 tonnes/hectare was much lower than the Sabah state average of 20.90 tonnes/hectare and the national average of 18.65 tonnes/hectare.

Notwithstanding the plantation division’s performance, DutaLand registered lower revenue of RM115.5 million in FY2011 (FY2010: RM121.2 million) due mainly to lower contribution from property development activities which fell to RM59.4 million from RM88.2 million in the preceding fiscal year. The group registered a pre-tax profit of RM3.5 million, which is an improvement over FY2010’s pre-tax loss of RM9.5 million (excluding a one-off gain of RM26.1 million). Cash flow from operations has also shown a significant improvement to RM101.4 million (FY2010: RM10.1 million) mainly attributed to higher receivables collection. The group’s debt-to-equity ratio stood lower at 0.17 times as at FY2011 (FY2010: 0.26 times).

MARC notes that DutaLand repaid and cancelled RM82.0 million of financial instruments, which includes RM5.6 million of RULS in FY2011. The next scheduled redemption for the RULS of RM5.6 million is due in April 2012, with a final redemption of RM15.0 million in April 2013. With its consolidated liquidity position remaining minimal at RM12.5 million (FY2011: RM11.6 million) in relation to short-term obligations of RM69.8 million as of 1QFY2012, MARC expects DutaLand to accelerate asset disposals to support the group’s ability to fully meet debt repayments.

Contacts:
Thian Chow Di, +603-2082 2280/ chowdi@marc.com.my ;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my .

MARC DOWNGRADES RATING OF OLYMPIA INDUSTRIES BERHAD’S OUTSTANDING RM49,733,635 NOMINAL VALUE REDEEMABLE UNSECURED LOAN STOCKS TO B+ FROM BB-

Jan 27, 2012 -

MARC has downgraded the rating of Olympia Industries Berhad’s (Olympia) outstanding RM49,733,635 nominal value Redeemable Unsecured Loan Stocks (RULS) to B+ from BB- and concurrently revised the rating outlook to stable from negative. The rating action reflects Olympia’s continued weak financial performance, in particular its limited cash flow generation ability arising from its weak business profile and its dependence on asset disposals to meet its financial obligations. Olympia has a short-term debt of RM81.3 million including an upcoming redemption of RM10.7 million RULS in April 2012, while its liquidity position as reflected by its cash and cash equivalents stood at RM31.9 million as at September 30, 2011.

MARC notes that the slower-than-expected progress of the Kenny Heights Development (KHD) project on a 73-acre site in Kuala Lumpur has weighed on its financial performance. The KHD project, which consists of high-end residential projects and undertaken with a related company, DutaLand Berhad, was expected to provide a major boost to earnings. However, as of date, only one project, consisting of 49 units of four-storey villas with a gross development value of RM216.0 million, was completed and handed over in April 2011, while the first phase of its next project comprising two high-end condominium towers has been delayed from an initial launch date in 1Q2011. MARC notes that a soft launch of one tower of 168 units has only registered a 17% take-up rate, reflecting the weakening market sentiments for the high-end residential segment in the Klang Valley. MARC remains concerned on Olympia’s ability to fund the development given its weak liquidity position and limited financial flexibility.

Nonetheless, Olympia’s revenue continues to be supported by somewhat stable earnings from its gaming division and from rental proceeds from its Menara Olympia building. Gaming operations, which are carried out solely in Sabah, have come under increasing competitive pressures, registering a 4% decline in revenue to RM152.0 million for financial year ending June 30, 2011 (FY2011) (FY2010: RM158.2 million). However, operating profit was higher at RM6.2 million as compared to the RM0.2 million in FY2010 due mainly to a one-off restoration cost incurred in 2010. Olympia’s investment property, the 34-storey Menara Olympia with total lettable area of 457,521 sq ft, registered a lower occupancy rate of 74% in FY2011 (FY2010: 78%), and as a result, rental income declined to RM18.9 million (FY2010: RM19.4 million). MARC notes that the lower occupancy has somewhat been offset by an increase in average rental rates to RM4.80 psf from RM4.30 psf. The group’s other businesses, namely financial services and travel, managed to turnaround in FY2011, registering a modest operating profit of RM3.5 million (FY2010: -RM8.4 million) and RM0.6 million (FY2010: -RM0.1 million) respectively.

For FY2011, Olympia’s improved pre-tax profit of RM9.1 million (FY2010: -RM5.1 million) after two consecutive years of pre-tax losses was mainly due to lower fair value losses from disposal of marketable securities as compared to previous years. However, for the first quarter ended September 2011 (1QFY2012), MARC notes that the group suffered a sharp pre-tax loss of RM32.1 million (1QFY2011:-RM1.5 million) arising from fair value losses incurred on disposal of marketable securities.

MARC notes that Olympia’s liquidity position in FY2011 was largely supported by cash inflows generated from the disposal of marketable securities and land parcels which amounted to RM138.9 million to enable it to meet its financial obligations of RM85.1 million. Given the group’s limited cash flow generating ability, it would need to depend on asset sales to generate liquidity. Among its major assets is Menara Olympia which has a carrying amount of RM228.1 million as at September 5, 2011 and is secured against debts amounting to RM157.1 million, though MARC notes an earlier sale agreement for the building had fallen through.

The stable outlook incorporates MARC’s expectations that Olympia will manage timely disposal of assets to meet its future debt obligations.

Contacts:
Darrell Lim, +603-2082 2261/ darrell@marc.com.my ;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my .

MARC AFFIRMS AAAID/MARC-1ID AND AAAIS RATINGS ON PUTRAJAYA HOLDINGS SDN BHD'S RM8.97 BILLION ISLAMIC DEBT FACILITIES AND PROGRAMMES

Jan 26, 2012 -
MARC has affirmed its AAAID /MARC-1ID and AAAIS ratings on Putrajaya Holdings Sdn Bhd’s (PJH) Islamic debt issuances as follows:-
• RM570 million Bai Bithaman Ajil (BBA) Bonds Issuance Facility (due 2013)
• RM850 million BBA Bonds Issuance Facility (due 2013)
• RM850 million BBA Serial Bonds Issuance Facility (due 2015)
• RM1.5 billion Murabahah Notes Issuance (MUNIF) Facility (due 2015)
• RM2.2 billion Murabahah Medium Term Notes (MMTN) Programme (due 2021)
• RM1.5 billion Murabahah Commercial Papers/Medium Term Notes (CP/MTN) Programme (due 2013)
• RM1.5 billion Sukuk Musyarakah MTN Programme (due 2033).

The outlook for the ratings is stable. The ratings incorporate PJH’s very strong financial profile, characterised by stable and predictable rental income from the government buildings constructed for the Malaysian government under a build-lease-transfer concession. The ratings also take into consideration the strength of the company’s major shareholders, namely, Petroliam Nasional Berhad (Petronas) through KLCC (Holdings) Sdn Bhd and Khazanah Nasional Berhad (Khazanah), to extend timely financial support in the event of need.

In addition, the ratings acknowledge the strong protection afforded by the creation of designated accounts to capture assigned sublease rental streams with regard to the BBA bonds and notes issued under the RM2.2 billion MMTN programme as well as the moderate protection afforded by negative pledge covenants in respect of the remaining rated obligations.

PJH is the lead developer for Putrajaya, the Federal Government Administrative Capital. Since beginning construction in 1996, PJH has completed the construction of specified government buildings and government quarters under the build-lease-transfer concession. The government buildings were fully handed over to the government in 2010 while the government quarters were handed over in December 2011.
The government offices are constructed on land which the Federal Land Commissioner will lease to PJH for a 25-year tenure immediately after the delivery of the buildings. The buildings are subleased back to the government for an identical tenure. The sublease rental payments for the government buildings, which range from RM2.73 psf to RM3.55 psf, provide a steady source of income for PJH. As of September 30, 2011, the lease rentals captured in the security accounts stood at RM340.5 million, which MARC deems to be sufficient to meet PJH’s near-term debt service redemptions totalling RM280.0 million in 2012.

For financial year ending March 31, 2011 (FY2011), PJH’s revenue continued to decline, registering RM1,497 million (FY2010: RM1,751 million), mainly on account of lower construction receivables as its projects reached the tail-end stage of construction. However, profit before tax was boosted to RM740.7 million (FY2010: RM495.0 million) due largely to gains from disposal of Menara PJH and some parcels of commercial land for a total of RM235.5 million.

PJH’s operating cash flow (CFO) generation remains strong at RM1,093 million (FY2010: RM1,070 million), as a result of stable rental income from government buildings. Lower cash outflow from investing and financing activities have also contributed to the overall improvement in PJH’s cash flow profile. However, MARC notes that a one-off high dividend payment of RM396.0 million was made during the year (FY2010: RM40.9 million; FY2009: RM33.0 million).

MARC observes that despite an increase in PJH’s borrowings to RM5,560 million in FY2011 (FY2010: RM5,504 million), its gearing levels declined to 1.18 times (FY2010: 1.21 times) on the back of an increase in shareholders’ funds. The availability of unutilised credit lines of RM1,000 million (excluding undrawn limits of the rated facilities) affords considerable financial flexibility to PJH.
The stable ratings outlook assumes that PJH’s credit metrics with respect to its cash flow coverage would remain consistent with the assigned ratings in the near-to-intermediate term.

Contacts:
Thian Chow Di, +603-2082 2280/ chowdi@marc.com.my;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.

What will be fueling the world in 2030 (as reported by The Economist)

(See http://www.economist.com/blogs/graphicdetail/2012/01/energy?fsrc=scn/tw/te/dc/wattsnext): The world will consume 40% more energy in 2030 than it does today, according to BP's World Energy Outlook, though the rate of growth will decrease from around 2.5% a year over the past decade to an annual rate of 1.3% in 2020-30. One source of power has always dominated the energy mix—wood in the pre-industrial age, coal in the industrial revolution and then oil in the 20th century. But by 2030 trends in the energy mix will see fuel shares converge for the first time as gas gains in importance.The amount of energy needed to produce a unit of GDP will also converge as globalization drives energy efficiency, making economic growth far less energy intensive everywhere in the world.

DIFC's Weekly Economic Commentary January 22, 2012

(See: http://www.difc.ae/difc-blogs/weekly-economic-commentary-january-22-2012): Stock markets reacted positively to China's growth data with ripples around the rest of the world, but after some directionless sessions the week ended on a softer tone in Europe and the US. European spreads came down somewhat but Portugal's 10yr yield reached 13.81%. Among regional markets, ADX fell to a five month low last week, while Saudi Arabian shares gained the most in more than five weeks yesterday, on strong Q4 corporate earnings. Euro fell from a two-week high against the dollar on Friday while emerging market currencies had a much favourable week. Oil prices dropped in spite of the tensions in Iran, on expectations of lower demand and ahead of the outcome of the Greek deal. Gold prices were up 1.7% compared to a week ago, though prices eased on Friday.

Apple posts record $13.06bn quarterly profits, up 118% (By BBC)

See: http://www.bbc.co.uk/news/business-16712089: Apple reported record-breaking net profits for the three months to 31 December 2011 of $13.06bn (£8.36bn), up 118% from the same period in 2010.

The company also sold 37 million iPhones, more than twice as many as it sold in the last quarter of 2010.

"Apple's momentum is incredibly strong, and we have some amazing new products in the pipeline," said chief executive Tim Cook.

The firm is expected to release its iPad 3 in March this year.

"We are very happy to have generated over $17.5bn in cash flow from operations during the December quarter," said Peter Oppenheimer, Apple's CFO.

"Looking ahead to the second fiscal quarter of 2012, we expect revenue of about $32.5bn and we expect diluted earnings per share of about $8.50."

Japan posts first annual trade deficit in 30 years (By BBC)

(See: http://www.bbc.co.uk/news/business-16712816): Japan has announced its first annual trade deficit in more than 30 years, a setback for a country known for its exports including cars and electronics.

The deficit came in at 2.49 trillion yen ($32bn; £20bn) for 2011, the finance ministry said.

Japan's imports rose 12% and its exports fell 2.7%, compared to the previous year.

The decline in exports was attributed to the impact from the earthquake and tsunami on 11 March.

It reflects fundamental changes in Japan's economy, particularly among manufacturers”

Hideki Matsumura Japan Research Institute

The deficit underscores the pressure that Japanese exporters have come under since the disaster.

Factories were damaged and supply chains disrupted for major exporters including Toyota Motor and Sony.

Exporters' problems have been exacerbated by further disruptions to production in some of their Thailand facilities due to flooding, as well by a rising yen, which makes Japanese products more expensive overseas.

The uncertainty surrounding Europe and the US has caused global investors to turn to the yen, as a safer investment, causing it to appreciate.

Analysts warned the combination of these factors was hurting Japan's exporters as rivals from South Korea and other Asian nations compete in markets which Japanese companies had previously dominated.


"Japan is losing its competitiveness to produce domestically."


On the import side of the trade balance Japan has had to increase the amount of incoming energy supplies, as the Fukushima nuclear disaster saw many atomic power stations being taken offline.

As a result, crude oil imports surged 21.3% by value, liquefied natural gas imports rose 37.5% and petrochemical imports were up 39.5% compared to 2010, government figures showed.

Nuclear power previously accounted for about 30% of electricity generation in Japan.

But since the accident, Tokyo Electric Power and other utilities have been trying to restart their conventional power plants to meet energy needs.

Bank of Japan Governor Masaaki Shirakawa said on Tuesday that the trade deficit would not become a "firmly established trend" attributing it to "temporary factors" such as the increased demands after the earthquake.

However, given that Japan's major export markets, the US and Europe, are seen going into recession some analysts are forecasting that the trade deficit will continue.

Takuji Okubo of Societe Generale in Tokyo said Japan would see a trade deficit till 2014 because of "the combination of strong demand in Japan because of earthquake and reconstruction demand and weak demand outside of Japan in Europe and the US".

NACF’s AAA issue rating unaffected by reorganisation plan

Published on 20 January 2012
Based on further details recently made available to RAM Ratings on National Agricultural Cooperative Federation’s (NACF or the Cooperative) reorganisation plan, RAM Ratings continues to hold the view that the AAA/Stable rating of NACF’s senior notes under its Medium-Term Notes Programme of up to RM3.3 billion (MTN Programme) will be unaffected.

We opine that the collective roles of NACF and its newly established subsidiary, NH Bank (previously known as the Cooperative’s Credit and Banking Unit), are important to the country’s agricultural policies and will thus continue to benefit from the Government of Korea’s sturdy support. NACF’s reorganisation involves separating its profit centres into 2 new holding companies, i.e. financial and non-financial, which is due to be completed by 2 March 2012. Post-reorganisation, NH Bank will be added as a co-obligor in respect of NACF's MTN Programme.

Media contact
Gladys Chua
(603) 7628 1049
gladys@ram.com.my

Indonesia keeps stacking its chips (By IFN)

(See IFN) INDONESIA: The country continues to ride high on its return to investment grade status following a second upgrade to its credit rating in the span of one month; this time by Moody’s.

Investment flows have already been picking up even before it received its first upgrade by Fitch in December last year; with foreign direct investment (FDI) hitting a record of US$19.3 billion in 2011, also the highest in Southeast Asia. Its FDI is also expected to rise another 25% this year.

Two out of three nods from the world’s leading rating agencies – S&P has yet to raise its rating, currently the highest level below investment grade – is certain to open up room for further investment inflows; and the Sukuk mart is expected to be among the sectors with the most to benefit.

“The interesting area for Indonesia here is Sukuk. For some Middle East buyers who could not invest earlier because it was not investment grade, this is a new thing for them, which is good," Guan Ong, the principal at Blue Rice Investment Management, a hedge fund that specializes in fixed income, was quoted as saying.

Indonesia’s stacked chips also could not have come at a better time, with the global economy looking the way it is. Furthermore, Moody’s has also noted that high-yield corporate bond issuances in Asia will remain “highly uncertain” in the next few months as “credit markets stay choppy” on concerns over European sovereigns and China’s corporate governance issues keeping investors cautious.

“Caution and uncertainty look to be the by-words for at least the early part of 2012; and while Asian corporates may make preparations for the reopening of the high yield bond markets, it will likely take a higher speculative-grade rated, existing issuer to break the deadlock and open the floodgates for smaller and first-time names to the market,” said Laura Acres, a vice-president and senior credit officer at Moody’s.

For Asia this year, what better name is there than Indonesia to set credit flowing?

International Reserves of BNM as at 13 January 2012

(See BNM): The international reserves of Bank Negara Malaysia amounted to RM423.5 billion (equivalent to USD133.7 billion) as at 13 January 2012. The reserves position is sufficient to finance 9.6 months of retained imports and is 4 times the short-term external debt.

See also: BNM Statement of Assets & Liabilities as at 2012-01-13 2012-01-13

MARC AFFIRMS ITS A+, A and BBB+ RATINGS ON RCE ADVANCE SDN BHD's CLASS A, B AND C MTNs RESPECTIVELY; REVISES OUTLOOK TO STABLE

Jan 20, 2012 -
MARC has affirmed its ratings of A+, A and BBB+ on outstanding Class A, B and C notes issued by RCE Advance Sdn Bhd (RCEA) under its RM420 million Fixed Rate Medium Term Notes Programme. The ratings affect RM100 million of outstanding notes under Class A, RM98.5 million under Class B and RM60 million under Class C. The ratings outlook has been revised to stable from negative.

RCEA is a special purpose company wholly owned by RCE Marketing Sdn Bhd (RCEM), the originator of the six collateral pools (the collateral portfolio) of personal loans backing the rated notes. The collateral pools for this transaction consist solely of loans to members of Koperasi Wawasan Pekerja-Pekerja Berhad (KOWAJA), RCEM's largest business partner and borrower. RCEM has a continuing role under the transaction to replace defaulted and/or prepaid loans to maintain the transaction's three-month collateral cover ratio of 166% at all times. RCEM has also provided an undertaking to cover any shortfall in the sinking fund account for the notes. The notes also benefit from an irrevocable guarantee from RCE Capital Berhad, the ultimate holding company of RCEM.

MARC’s revision of its outlook reflects increased certainty that RCEM will be able to maintain the transaction's collateral cover covenant notwithstanding prevailing regulatory constraints which are affecting its ability to grow loans and fund loan growth. The increased certainty is supported by the transaction’s actual demonstrated ability to remain in compliance with its minimum covenanted level of 166% at all times, which is tested based on a trailing three-month total. Since December 1, 2010, when KOWAJA was first ordered to cease its lending activities over non-compliance with practice guidelines and prohibited from assigning newly originated loans to RCEM and other third parties, the prohibitions have been relaxed. MARC notes that in a recent decision on June 9, 2011 by the Cooperative Commission of Malaysia (CCM), KOWAJA was granted the approval to resume obtaining funds from RCEM, subject to a funding limit of RM200 million, among other conditions. While this means that RCEM has, to an extent, resumed lending to KOWAJA, it remains clear that the company has still not regained the operating flexibility it had earlier possessed. MARC understands that RCEM and KOWAJA are still working to achieve full compliance with regulatory guidelines.

The affirmed ratings continue to reflect healthy collateral coverage for the notes and satisfactory performance of RCEA’s collateral pools as result of the transaction’s structural mechanism for replacing defaulted and prepaid loans with performing ones from RCEM. Nonetheless, the ratings are moderated by RCEM’s heightened exposure to regulatory risk and increasing competition from other general loan financing companies.

As of September 30, 2011, all tranches of Class A and B notes had met their minimum required collateral coverage ratio of 1.66 times, supported by a collateral portfolio balance of RM216.0 million and designated account balances of RM74.6 million. During the reviewed period (October 2010 to September 2011), RCEA had redeemed RM10 million and RM6.5 million of Class A and B notes respectively.

Meanwhile, the reviewed average default rates for the collateral pools, which ranged from 0.3% to 0.5%, have remained relatively unchanged from the previous year (2010 review: 0.3% to 0.4%). The defaulted loans comprised 59 accounts with a collective outstanding balance of RM2.01 million, representing a default rate of 5.32% on the collateral portfolio’s outstanding principal balance; this default rate falls well under MARC’s cumulative default expectations (up to 10% at year 2015). At the same time, the range of average monthly prepayment rates was observed to be 2.6% to 4.0% and higher than last year’s (2010 review: 1.4% to 2.2%). The increase in prepayments was mainly driven by heavy refinancing activity in the month of April 2011 due to an influx of more competitive financing options in the market. Nonetheless, the risk of similar prepayment increases in the future are expected to be moderated by RCEM’s available performing receivables for substitution and the company’s sizeable cash balances, which will be utilised to provide necessary coverage for the notes. At the end of the reviewed period, the collateral portfolio was comprised of 8,611 seasoned accounts with an average remaining term to maturity of 67 months.

RCEM’s earnings results for its financial year ended March 31, 2011 (FY2011) showed improvement on the back of a 3.7% growth in revenue, despite a change in income recognition method from sum-of-digits to amortised cost, reflecting a higher net interest margin of 16.8% compared to 14.0% in the previous year. Meanwhile, RCEM’s loans and receivables contracted by 4.6% to RM1.08 billion at year-end owing to the adoption of FRS139, which involves more prudent methods of valuation for financial assets and liabilities. In FY2011, RCEM’s cash and cash equivalents rose to RM512.53 million from RM281.20 million following increases in cash flow from operational and financial activities. Consequently, its net gearing ratio as of end-FY2011 fell to 1.68 times from 2.04 times based on net borrowings of RM592.51 million over a total equity of RM351.97 million. Overall, RCEM continues to maintain a moderate credit risk profile.

Contacts:
Ruben Khoo Sheng Luen, +603-2082 2265/ rubenkhoo@marc.com.my;
Sandeep Bhattacharya, +603-2082 2247/ sandeep@marc.com.my.

Risk management instruments still lacking at Islamic financial institutions (By IFN)

(See IFN):Islamic finance has proven to be more resilient amid financial crises, but experts believe that more can still be done to manage risks.

Despite Islamic banks’ high liquidity, namely; in the form of cash, the industry still lacks the necessary depth to manage risks effectively, commented Jaseem Ahmad, the secretary general of the Islamic Financial Services Board.

“In that sense, there is still a shortage of Shariah compliant instruments and securities. A capital market is being developed but it is still not as liquid or as deep as we would want it to be; and it needs to be deeper,” Jaseem was quoted as saying.

Hence, there is room for substantial improvement in the equity management framework; as more instruments will afford Islamic banks more opportunity for risk management.

In addition to providing the banks access to a wider range of instruments, the banks should also be incentivized and provided with the necessary resources to strengthen their capabilities. Jaseem also noted that even high levels of loss-absorbing capital could be negated if risk management frameworks are not sufficiently strong and in spite of Islamic banks practising more conservative banking methods.

“There is a very high ratio of tier one capital and common equity among Islamic financial institutions which is loss-absorbing; and the kind of capital that Basel III has brought in now for conventional banks,” he noted. However, insufficient risk management and risky activities can still lead problems to crop up at any bank, “even if it is an Islamic bank,” added Jaseem.

At $400 billion, Apple is worth more than Greece (By CNN Money)

(CNNMoney) -- Apple's value on the stock market briefly rose to $400 billion on Thursday, a record high for what was already the world's most valuable technology company.

The company's market cap slipped below the $400 billion mark by midday as Apple's stock fell back from the all-time high of $431.37 it set earlier in the morning. Shares ended the day slightly down, leaving Apple with a $398 billion market value.

Still, that puts Apple in some pretty exclusive territory. Only Exxon Mobil has a higher valuation, at about $420 billion. PetroChina is Apple's closest competitor, at $270 billion, and Microsoft follows at $235 billion.

Apple's market cap is higher than the gross domestic product of Greece, Austria, Argentina, or South Africa.

MARC ASSIGNS AAA RATING TO KEXIM’S PROPOSED RM1.0 BILLION MTN PROGRAMME; AFFIRMS ITS AAA/AAAID RATINGS ON THE EXISTING RM3.0 BILLION DEBT PROGRAMMES; OUTLOOK STABLE

Jan 19, 2012 -
MARC has assigned its AAA rating on The Export-Import Bank of Korea’s (KEXIM) proposed RM1.0 billion Medium Term Notes (MTN) Programme. At the same time, the agency has affirmed its AAA and AAAID ratings on KEXIM’s conventional and Islamic MTN Programmes with a combined nominal value of RM3.0 billion. The outlook on the ratings is stable.

The ratings reflect KEXIM’s key role in executing the Republic of Korea (Korea) government’s foreign trade and investment policies through facilitating and financing Korean exports and overseas investments as the country’s official export credit agency (ECA). The ratings also incorporate the ECA’s legal status as a special governmental financial institution, its full ownership by the Korean government, and the government’s responsibility to cover the bank’s annual losses beyond its reserves under the KEXIM Act. MARC believes that the Korean government has strong incentives to provide timely financial assistance if and when needed. Additionally, the government’s strong support for KEXIM has been borne out by capital injections in the past as well as of late. MARC opines that support from the Korean government will continue in view of KEXIM’s important role in supporting the growth of Korea’s export-oriented economy and the Korean government’s significant capacity to provide liquidity or capital support. Accordingly, the long-term ratings benefit from support-driven rating uplift from KEXIM’s stand-alone creditworthiness which MARC assesses as ‘very strong’.

KEXIM’s activities mainly comprise export credit, overseas investment credit as well as provision of guarantees. The continuing significance of KEXIM’s role as Korea’s official ECA is reflected in the relatively rapid expansion in its loan portfolio; total outstanding loans have more than tripled to KRW47,994 billion as at September 30, 2011, from KRW15,051 billion as of end-December 2006. Export credits constitutes KEXIM’s most significant lending activity at 58% of total loans at end-June 2011; however, overseas investment credits have become an important component of the bank’s policy-based operations. Overseas investment credits, which consist of loans to finance overseas investments and projects of Korean companies, accounted for 34% of the bank’s total loans as at end-June 2011.

Apart from lending activities, the bank is also notably involved in the issuance of acceptances and guarantees, which stood at KRW60,092 billion as of end-June 2011 with a credit exposure of KRW40,365 billion. The majority of guarantees issued are project-related and comprise advance payment guarantees and performance guarantees issued to overseas importers of Korean goods and services to cover monies advanced to Korean exporters and to support the performance by Korean exporters of their contractual obligations respectively. The manufacturing sector accounted for 76.9% of the bank’s total guarantee commitments as of end-June 2011. KEXIM’s export credits are heavily concentrated in Asia at 84% of its total outstanding loan credits as of end-June 2011. KEXIM’s high sector concentration risk with respect to manufacturing and transportation (mainly shipbuilding) sectors which collectively comprised 64% of loans at end-June 2011 and individual large credit exposures is somewhat mitigated by the sound credit profiles of its borrowers comprising strong and established Korean corporations, which notably include the country’s major shipbuilders.

KEXIM’s gross non-performing assets (NPA) of 0.7% as at end-June 2011 is low on an absolute basis as well as in the international context. The bank's NPA ratio had increased significantly in FY2008 through FY2010 with the onset of global financial crisis and ensuing credit quality pressure. Loan loss provisioning in respect of the bank’s guarantee and acceptance portfolio allowances increased substantially in FY2010. During the six months to June 30, 2011 (1HFY2011), credit quality shows signs of stabilising with loans and guarantee and acceptance classified as sub-standard, doubtful and bad increasing by a mere 0.8% (FY2010: 36.1%). The bank’s NPAs are well provided for as indicated by a loan loss reserve cover of 329% as of June 30, 2011. MARC notes reversals amounting to KRW10 billion of provisions for loan losses during 1HFY2011 primarily due to improved asset quality as well as a decrease of loans classified as non-performing by 39% to KRW523 billion to end-June, down from KRW854 billion as of December 31, 2010. KEXIM’s ability to sustain its current asset quality metrics well into 2012 will be dependent on the resilience of the Korean export sector’s performance, which in turn will be highly sensitive to economic conditions in the key markets of Korean exporters financed by KEXIM.

The bank recorded a substantial improvement in its financial performance for the nine months ended September 30, 2011 (9MFY2011), mostly as a result of increased dividend income from Korea Exchange Bank and a decline in credit costs as evidenced by reversals of provisions and decreased loan loss provisioning, and increased dividend income. KEXIM posted a net income of KRW331 billion compared to a net income of KRW165 billion for the preceding year’s corresponding period. In comparison, 9MFY2010’s financial results had depended significantly on gains arising from the disposal of available-for-sale securities and gains on derivative valuation. KEXIM’s low profitability, which is indicated by its pre-crisis return on assets (ROA) of 0.90% in 2007, reflects the bank’s public policy-orientation as opposed to profit-oriented business.

The Korean government has demonstrated a continuing high level of commitment to provide capital injections in order to support KEXIM’s lending to Korean exporters. The government injected a total of KRW1,100 billion of new capital during 2011, increasing its paid-in capital to KRW6,259 billion as of December 31, 2011. As of June 30, 2011, the bank’s Tier 1 and total capital ratios were 10.8% and 12.2% respectively, up from December 31, 2010 levels of 9.3% and 10.8%. The demonstrated willingness of the Korean government to ensure that the bank remains soundly capitalised relative to its risk profile is also viewed as fundamental to KEXIM’s continued ability to fund itself in international capital markets and through borrowings from foreign banks.

The stable outlook on KEXIM’s ratings reflects MARC’s expectations that there will be no material deterioration in the bank’s operating or credit profile, or change in the capacity and willingness of the Korean government to support the bank in the near-to-medium term.

Contacts:
Sakinah Ali, +603-2082 2272/ sakinah@marc.com.my;
Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my;
Milly Leong, +603-2082 2288/ milly@marc.com.my.

Eastman Kodak files for bankruptcy protection (by BBC News)

(See http://www.bbc.co.uk/news/business-16625725): Eastman Kodak, the company that invented the hand-held camera, has filed for bankruptcy protection.

The move gives the company time to reorganise itself without facing its creditors, and Kodak said that it would mean business as normal for customers.

The company has recently moved away from cameras to focus on making printers, to try to stem its losses.

The 133-year-old firm has struggled to keep up with competitors who were quicker to adapt to the digital era.

"Kodak made all its money from selling film, then the digital camera came along and now no-one's buying film. It's not like they didn't see it coming. Kodak hesitated because they didn't want to eviscerate their business," said Rupert Goodwins, editor of technology website ZDNet.

Announcing the move to seek bankruptcy protection, Antonio Perez, Kodak's chairman and chief executive, said: "The board of directors and the entire senior management team unanimously believe that this is a necessary step and the right thing to do for the future of Kodak."

Article by IFN: 2012 - Fireworks or dynamite?

(SEE IFN): The Islamic finance industry has gotten off to an explosive start this year; with two landmark Sukuk issuances in the second week of January alone. These comprise Projek Lebuhraya Usahasama’s US$9.67 billion Sukuk, the world’s largest offering by a single issuer to date and the launch of a Sukuk from Saudi Arabia’s General Authority for Civil Aviation, marking the first ever sovereign Islamic bond from the kingdom.

The watershed sales were preceded by two benchmark-sized sales from First Gulf Bank and Emirates Islamic Bank, in addition to a US$300 million offering from Tamweel – making up a flurry of issuances that have led market players to predict 2012 as heralding an unprecedented year for Sukuk, even before the first month of the year has drawn to a close.

MARC WITHDRAWS ITS SUKUK RATINGS ON OFFSHOREWORKS CAPITAL

Jan 17, 2012 -

MARC has withdrawn its BBIS and MARC-4IS Sukuk ratings on funding vehicle Offshoreworks Capital Sdn Bhd (OWC). The rating action affects RM200.0 million of outstanding Sukuk Musyarakah and RM150.0 million of outstanding Musyarakah Commercial Paper/Medium Term Notes (MCP/MMTN). Since the rating agency's decision to continue to maintain the Sukuk ratings on review for further downgrade on December 16, 2011 due to insufficient available information, no attempt has been made by OWC's parent, oilfield services provider Offshoreworks Holdings Sdn Bhd (OHSB), to provide MARC with complete and current information to conclude its review on the ratings.

OHSB has failed to furnish current information concerning its financial position including its audited financial statements for the financial year ended December 31, 2010 while OWC has yet to provide any information on the status of its debt restructuring negotiations with sukukholders. Consequently, MARC has taken a decision to withdraw its Sukuk ratings and discontinue analytical coverage on OWC.

Contacts:
Sabesh Parameswaran, +603-2082 2260/ sabesh@marc.com.my;
Francis Xaviour Joe, +603-2082 2279/ fxjoe@marc.com.my.

Maybank to sell stake in Indonesia's BII, appoints UBS (By Star)

See http://biz.thestar.com.my/news/story.asp?file=/2012/1/17/business/20120117085606&sec=business: Malayan Banking Bhd (Maybank), Malaysia's biggest lender by assets, has appointed UBS to handle the sale of a stake in its banking unit, PT Bank Internasional Indonesia (BII), its chairman said on Monday.

Maybank is required by the Indonesian capital market regulator, Bapepam-LK, to sell down its stake in BII to at least 80 percent from 97 percent currently. It has so far managed to sell 0.5 percent of its stake in the open market.

"We're not going to sell down if we're going to make a loss compared to what we thought it should be," said Tan Sri Dato' Megat Zaharuddin bin Megat Mohd Nor, Maybank's chairman.

"We believe that at the right price people will buy the future growth...We don't think we need to give a discount," he told Reuters.

Zaharuddin, who is also BII's president commissioner, said the bank will not sell BII's stake below 510 rupiah per share, the price it paid to buy the bank in 2008.

That means that Maybank could raise at least 4.8 trillion Indonesian rupiah ($528.63 million) from the stake sale, based on a Reuters calculation.

Standard & Poor's downgrades EU bailout fund EFSF (by BBC News)

See http://www.bbc.co.uk/news/business-16586807: The credit ratings agency Standard & Poor's has downgraded the EU bailout fund to AA+ from AAA.

The European Financial Stability Facility's (EFSF) rating is based on the ratings of the countries that guarantee it.

S&P's downgrade of France and Austria on Friday meant there were not enough AAA rated guarantors for the fund to maintain its top rating.

The downgrade could affect the EFSF's ability to raise money cheaply.

S&P said the EFSF could regain its AAA rating if it obtained additional guarantees.

The Philippines is Banking on tourism (by Oxford Business Group)

See http://www.oxfordbusinessgroup.com/: With 2011 having seen a spike in visitor arrivals, the Philippines’ tourism sector is moving ahead with plans to become a major engine for the country’s economic growth.

That this increase in numbers occurred at a time of global economic downturn, not to mention some turbulence in the sector’s leadership, is no small achievement. Although tourism currently accounts for only 11% of the country’s GDP, hopes are high that this number can grow significantly.

“I hope the 12% increase in tourism arrivals [in 2011] will mark the start of better things ahead for the country,” President Benigno Aquino III recently said. “The private and public sector must work together to promote tourism.”

PLUS sells landmark US$9.67 billion Sukuk; world’s largest Islamic bond offering to-date (By IFN)

SEE IFN> MALAYSIA: Projeck Lebuhraya Usahasama (PLUS) issued a landmark RM30.6 billion (US$9.67 billion) Sukuk on the 12thJanuary, in what is widely seen as the world’s largest Islamic bond offering to-date.

The deal, managed by CIMB Investment Bank, AmInvestment Bank, Maybank and RHB Investment Bank, was made up of a RM19.6 billion (US$6.3 billion) ‘AAA’-rated program and an RM11 billion (US$3.5 billion) government guaranteed program.

Speaking to Islamic Finance news, Badlisyah Abdul Ghani, the executive director and CEO of CIMB Islamic, said that the ‘AAA’-rated program was priced at between 3.9-5.75% for 21 tranches with maturities ranging from five to 25 years. The government guaranteed program was priced at 5.5% for two tranches maturing in 26 and 27 years.

He also said that the program was privately placed; taken up by the transaction’s lead managers and pension funds.

The success of the issuance has also led to optimism on Malaysian Sukuk sales this year, with Badlisyah noting that: “This will be the best year ever.”

He said that although the PLUS deal makes up the largest Sukuk sale from a single issuer to-date, another transaction is expected to follow this year due to the number of projects coming on-stream in Malaysia from the government’s economic transformation program.

The CIMB Group is also expected to continue dominating the market this year for arranging Sukuk, Badlisyah added.

Goldman Sachs US$2 billion Sukuk facing heat (by IFN)

SEE IFN: Goldman Sachs’ US$2 billion debut Sukuk program continues to attract controversy as news emerged that three Shariah scholars named in its prospectus as potential endorsers of the papers have not responded to requests to participate in the compliance approval process.

The program’s Shariah compliance has been mired in doubt following questions first raised in a report in Islamic Finance news, (Vol 8, Issue 47), on the 30thNovember last year.

In the latest development, Asim Khan, the managing director of Dar Al Istithmar, which is the Shariah advisor on the deal, said that the scholars comprise Dr Daud Bakar, the president and CEO of Amanie Business Solutions, Shaikh Abdulla Sulaiman Al Manea, the deputy chairman of the Shariah board at AAOIFI and Dr Mohamed Ali Elgari, a professor of Islamic economics.

However, Asim said that their lack of cooperation has no bearing on the Sukuk’s Shariah compliance. “Given that the issuance was not to take place at that stage and this was only a preliminary prospectus, it was appropriate not to pre-judge the eventual outcome or speculate which Shariah scholars would eventually be able to consider, evaluate and sign off on the Shariah compliance of this complex transaction,” Asim was quoted as saying.

According to the Sukuk’s prospectus: “A group of Shariah scholars composed of, among others, members of the Shariah supervisory board of the Shariah advisor may, at the request of the Shariah advisor, issue a fatwa as to their view on the Shariah compliance of the program on or about the closing date. The advising scholars are expected to be: Dr Hussain Hamed Hassan; Dr Ali Al Qaradaghi; Dr Abdul Sattar Abu Ghuddah, Dr Abdulaziz Fawzan Saleh Al Fawzan; Dr Daud Bakar; Dr Aznan Hasan; Sheikh Abdullah Sulaiman Al Manea; and Dr Mohamed Ali Elgari.”

Meanwhile, two scholars, who have declined to be identified, have reportedly expressed surprise and concern over the listing of their names in the prospectus.
However, Goldman has continued to stand by the compliance of the program, commenting to Islamic Finance news that: “We are entirely confident in the opinion we received that our program is in compliance with Shariah laws.”

Malaysia: New Coins Series Issued Into Circulation from 16 January 2012

Bank Negara Malaysia is pleased to announce that the new Malaysian coins series will be issued into circulation from 16 January 2012 onwards. Members of the public will be able to obtain these new coins through their normal business transactions.

The new coins to be introduced into circulation in phases are legal tender and will co-circulate with the existing series. The existing series will be gradually phased out. In ensuring a smooth transition to the new coins series, machine vendors had been given sufficient time to calibrate their machines to accept these new coins.

Themed 'Distinctively Malaysia', the new coins series draws inspiration from distinctive features that define the nation's rich culture and heritage. The design motifs were crafted in the form of nature, flora and fauna and traditional handicraft which is found in Malaysia. The new coins series are in the denominations of 5 sen, 10 sen, 20 sen and 50 sen.

The new coins are smaller and lighter making it more user-friendly for the public. The yellow and silver coloured coins enable the public to easily distinguish the different denominations. The edged designs and the different sizes will facilitate the visually impaired to identify and differentiate the denominations. In addition, latest advancements in minting technology which incorporates improved counterfeit resistance security features are embodied in the new coins series. The new metal alloy used for minting has enhanced durability against wear and corrosion.

For further information on the new coins series, members of the public can contact BNMTELELINK at 1-300-88-5465 or call 03 - 2698 8044 ext 8658 or visit Bank Negara Malaysia's website at www.bnm.gov.my.

SEE BNM: http://www.bnm.gov.my/index.php?ch=8&pg=14&ac=2386&utm_source=twitterfeed&utm_medium=twitter

RAM Ratings reaffirms Hubline's ratings, maintains negative outlook

Published on 09 January 2012
RAM Ratings has reaffirmed the respective long- and short-term ratings of A2 and P1 for Hubline Berhad’s (“Hubline” or “the Group”) RM150 million Murabahah Commercial Papers/Medium-Term Notes Programme (2005/2012). Concurrently, the A2 rating of its RM70 million Bai’ Bithaman Ajil Islamic Bonds (2005/2012) has also been reaffirmed. Meanwhile, the negative outlook on the long-term ratings has been maintained. Hubline is involved in the provision of container and dry-bulk shipping services as well as vessel chartering.

Hubline’s ratings remain supported by the Group’s extensive network of 70 agents across 18 countries and niche routes that give it a competitive edge over its peers. The Group plies certain niche routes which are less competitive and where freight rates are more attractive. Due to its fleet of smaller vessels, the Group is able to call at smaller ports that cannot accommodate the large vessels of the main line operators. Being involved in both the container and dry-bulk shipping segments, Hubline is able to enjoy some degree of diversification.

However, the ratings are moderated by the Group’s vulnerability to the cyclical nature of the shipping industry. Hubline has no control over movements in freight rates, which can be very volatile. On top of this, the shipping industry is also facing overcapacity amid the slowdown in global trade; this is anticipated to worsen with the imminent availability of more new vessels. Meanwhile, Hubline is also exposed to volatile bunker costs as well as hefty expenses from the maintenance and purchase of vessel equipment to support its operations.

In FYE 30 September 2011 (“FY Sep 2011”), profit from Hubline’s dry-bulk shipping business improved year-on-year (“y-o-y”) following some recovery in freight rates and cargo volumes from new contracts. Although the rates for container shipping declined y-o-y in FY Sep 2011, the Group benefited from lower bunker costs (arising from the stronger ringgit against the US dollar) as well as lower operating expenses from its active planning of trade routes. As such, Hubline’s operating profit before depreciation, interest and tax jumped 69.4% y-o-y to RM85.08 million in FY Sep 2011 (FY Sep 2010: RM50.21 million). At the same time, the Group’s funds from operations (“FFO”) debt cover advanced from 0.14 to 0.16 times y-o-y. That said, its cashflow-protection metrics remained weaker than its pre-crisis level of above 0.2 times.

Despite the better showing, we have maintained the negative rating outlook, premised on Hubline’s patchy recovery in FY Sep 2011 and our concerns over the sustainability of its improved operating performance. “Going forward, the operating environment for Hubline’s container and dry-bulk shipping is expected to remain tough amid the influx of new capacity and mounting anxiety over the Euro zone’s crises, which may pose downside risks to global trade. We also expect the Group to remain challenged by weak freight rates for both its shipping segments. Taking this into consideration, Hubline’s FFO debt cover is envisaged to remain lethargic at around 0.14 times through the next 2 years,” opines Kevin Lim, RAM Ratings’ Head of Consumer and Industrial Ratings.

Hubline’s ratings could be downgraded if its business fundamentals weaken and its financial metrics deteriorate amid a notable decline in freight rates and/or cargo volumes. On the other hand, the negative outlook may be revised to stable if the Group is able to demonstrate sustainable improvement in its financial performance.

Media contact
Jannie Wong
(603) 7628 1084
jannie@ram.com.my

PLUS Berhad Issues World's Largest Sukuk At RM30.6 Billion

KUALA LUMPUR, January 8: Projek Lebuhraya Usahasama Berhad (PLUS Berhad) is set to issue RM30.6 billion Sukuk – the largest global Sukuk and Malaysia’s single largest bond issuance to-date.

The Sukuk issuance, scheduled for January 12, follows the privatisation of PLUS Expressways Berhad (PEB) – one of Malaysia’s largest privatisation exercises – and the restructuring of the toll concessions under PEB and Penang Bridge Sdn Bhd (PBSB). The concession agreements of these highways will be novated to PLUS Berhad, a wholly owned subsidiary of PLUS Malaysia Sdn Bhd. The latter is the investment vehicle of UEM Group Berhad (51 percent) and Employees Provident Fund Board (EPF; 49 percent).

See: http://www.kwsp.gov.my/index.php?ch=p2news&pg=en_p2news_press&ac=3770

RAM Ratings reaffirms S P Setia's rating

Published on 09 January 2012
RAM Ratings has reaffirmed the AA3 rating of S P Setia Berhad’s (“S P Setia” or “the Group”) RM500 million Nominal Value of 2% Redeemable Serial Bonds (“Bonds”) with 168,151,302 Detachable Warrants (2007/2012); the long-term rating has a stable outlook. The outstanding amount of the Bonds stood at RM250 million presently.
The rating reflects S P Setia’s strong business profile as a prominent property developer in Malaysia. S P Setia boasts strong diversification in terms of product range and geographical presence. The Group has a proven ability to offer a wide array of properties with different price tags to cater to different segments of the market, with most of its offerings achieving full take-ups within 1–2 years. “S P Setia’s strong branding and product innovation underscore its robust revenue generation capability. We believe these factors, guided by the Group’s capable management team will continue to fuel its operating performance,” underlines Shahina Azura Halip, RAM Ratings’ Head of Real Estate and Construction Ratings. The Group’s record level of unbilled sales of RM2.83 billion as at end-October 2011 should ensure some earnings stability over the next few years.

Aside from its large stable of ongoing projects, S P Setia has over 5,500 acres of undeveloped land in various prime locations within the Klang Valley, Penang and Johor, which are expected to keep it busy for at least another decade. The Group also features a robust liquidity profile, with large holdings of cash and cash equivalents of some RM1.44 billion against RM236.17 million of short-term debts as at end-October 2011.

On the flip side, the rating is moderated by the Group’s projected borrowing requirements which are expected to peak at close to RM3.3 billion over the next 1-2 years. The higher debt load is primarily to fund its recent land acquisitions which came close to RM1.9 billion. At its weakest, its operating profit before depreciation, interest and tax debt cover and funds from operations debt cover are projected to remain thin at a respective 0.11 times and 0.08 times. However, the weaker-than-average financial profile is largely moderated by RAM Ratings’ view that the projected metrics are unlikely to fully materialise. As seen in the past, the Group has consistently demonstrated its ability to pace its borrowing requirements and manage its capital structure through other fund-raising alternatives. This is evinced by its successful share placement last year, which raised some RM885 million. Additionally, the Group has the flexibility of disposing of land and investment properties to generate cash, when required. “That said, we highlight that should the Group’s debt load stay elevated for a prolonged period, suggesting an increased tolerance for financial risk, and/or no improvement is noted in its debt-protection measures over the next 2 years, its ratings may face downward pressure,” cautions Shahina.

Additionally, there is some degree of uncertainty in relation to the role of S P Setia’s president and chief executive officer, Tan Sri Liew Kee Sin, following Permodalan Nasional Berhad’s (“PNB”) takeover bid in September 2011. Although a proposed agreement to govern the incentives and rights of the management team is being ironed out, the exact terms and conditions remain unknown. We opine that the Group’s longer-term business profile may suffer negative implications should there be significant management changes or if PNB’s involvement and control over the Group extend beyond board representation.

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

New loans beat forecast, as authorities ease credit

(BBC News): China's lending and money supply grew at a faster pace than expected as the country relaxed its credit restrictions.

New loans worth 640.5bn yuan ($101bn; £65.6bn) were issued in December, up from 562.2bn yuan in November.

Last month, the central bank cut the amount of money banks have to hold in reserve for the first time since 2008.

Chinese authorities are seen to be spurring domestic growth amid fears of a slowdown in the US and Europe.

China had previously been struggling to tame high inflation and therefore the central bank had been tightening monetary policy.

However, analysts said the lending figures out on Sunday show a shift in policy towards easing to encourage lending.

"The policy easing signal is becoming clearer," said Wang Hu, from Guotai Junan Securities in Shanghai. "We think the central bank will continue to loosen credit in the coming months."

SEE BBC NEWS: http://www.bbc.co.uk/news/business-16464092

Greek prime minister warns of March default

(bbc bEWS): Greek Prime Minister Lucas Papademos has said Greece may default on its debts in March unless unions accept further cuts to salaries.

Mr Papademos said more cuts were needed to avoid exiting the eurozone.

Analysts say the warning is to prepare Greece for more austerity measures.

European Commission, International Monetary Fund and European Central Bank inspectors, known as the troika, arrive to assess Greece's progress in cutting its deficit on 15 January.

They will decide whether to provide further bailout funds to the country.

SEE BBC NEWS: http://www.bbc.co.uk/news/business-16418523

US web portal Yahoo has named Scott Thompson, the president of online payments firm Paypal, as its new head

(See BBC News): US web portal Yahoo has named Scott Thompson, the president of online payments firm Paypal, as its new head.

He will fill the vacancy left by Carol Bartz, who was dismissed as chief executive in September after failing to turn around the company's fortunes.

Mr Thompson has headed Paypal, the payments division of eBay, since 2008, during which time its userbase doubled.

Yahoo is currently undergoing a strategic review as it has failed to keep up with rivals such as Google.

SEE BBC NEWS: http://www.bbc.co.uk/news/business-16414704

EU member states have agreed in principle to ban imports of Iranian crude oil

(See BBC News): EU member states have agreed in principle to ban imports of Iranian crude oil to put pressure on the country over its nuclear programme.

The move is expected to be announced formally at an EU foreign ministers' meeting at the end of January.

The US, which recently imposed fresh sanctions on Iran, welcomed the news.

Iran has dismissed the threat of new sanctions and denies Western claims that it is trying to develop a nuclear weapons programme.

Iran has also denied that a record low of its currency this week was linked to punitive US measures against its banks.

Oil prices on international markets rose on news of the EU agreement.

"We have an [EU] foreign ministers' meeting on January 30, and on this occasion I hope we will be able to take the decision on the embargo of oil and petrol from Iran", said French Foreign Minister Alain Juppe.

"We have to reassure some of our European partners who purchase Iranian oil. We have to provide them with alternative solutions", he added.

On Tuesday France had called for "stricter sanctions" on Iran.

However, even if sanctions are adopted at the end of the month, it may be several months before they are implemented.

SEE BBC NEWS: http://www.bbc.co.uk/news/world-middle-east-16418589

PR from IFN: Can EIB Sukuk beat global credit gloom?

(See IFN): Emirates Islamic Bank (EIB), a unit of Emirates NBD (ENBD), has reportedly mandated six banks for the potential sale of a benchmark-sized, US dollar-denominated Sukuk.
This follows news in December 2011 that ENBD decided to shelve its own plans for a five-year Sukuk; with an Islamic bond sale being looked at by EIB instead.

According to reports, EIB has hired HSBC Holdings; Standard Chartered; Citigroup; The Royal Bank of Scotland; Emirates NBD Capital and the National Bank of Abu Dhabi to manage the possible issuance.

PR from IFN: The best in Islamic finance

(See IFN): With the turbulence in the global markets this year and the political and financial volatility making any transaction a risky business, the Islamic finance industry has sailed through stormy waters in 2011 to emerge battered but not broken at the end of what has been a challenging twelve months for all participants in the market.

But what doesn’t kill you makes you stronger, as the saying goes, and we have not only grown and strengthened, but had the opportunity to learn valuable lessons from the challenges of the past year. The Sukuk market has bounced back to record levels, with a strong performance right up to the end of the year: including the US$1 billion Indonesian sovereign issuance on the 14th November and the US$750 million issuance by the Kingdom of Bahrain on the 16th November, and the US$500 million issuance by Abu Dhabi Commercial Bank on the same day.

The global economy is still extremely shaky, however, and we must shore up our foundations and look to consolidation and commitment to strong ethical and operational principles in order to prosper in 2012. The EU is still undergoing severe political and financial problems, especially in the PIGS countries of Portugal, Ireland (and Italy), Greece and Spain, and Eurozone funding pressures are expected to continue into the new year with the euro falling to a 10-year low against the yen and losing more than 3% against the dollar. The US is still struggling with high unemployment and unsustainable debt levels, and although the Dow Jones ended the year with a 5.5% gain, 2012 looks to be another turbulent year in the run-up to the November elections. The Middle East experienced extreme disruption in 2011 with the Arab Spring sweeping across north Africa and the Gulf region, and despite financial markets settling down somewhat towards the end of the year, oil prices still ended 2011 up 13% due to supply concerns, including Iran’s recent threat to shut the Strait of Hormuz, a vital oil shipping point.

However, Islamic finance has carved itself a strong niche in the global financial industry, and can look forward to a positive new year. Asia is performing strongly, and countries such as China and India have made big strides in entering the Islamic finance industry, offering new and exciting areas for development. France, the UK, Luxembourg, Japan and Australia have also entered the market and taken some positive steps towards encouraging their domestic industries, while in South Asia Pakistan, Bangladesh, Sri Lanka and the Maldives have all also been industriously encouraging development. In more established regions, Malaysia also consolidated its position as the global hub for Islamic finance, accounting for 68% of Sukuk issuances in 2011.

So it is with brave faces and high hopes that we face the next twelve months, and in anticipation of what 2012 will bring, Islamic Finance news kicks off the new year by celebrating the best of 2011 with this special awards issue, revealing the winners of the sixth annual Islamic Finance news Awards, including our industry-leading Deals of the Year awards and the results of our groundbreaking Best Banks Poll. In a break from tradition and to add to the excitement, however, please note that the results for four awards categories (Most Innovative Islamic Bank, Best Overall Islamic Bank, Most Innovative Deal, and Deal of the Year) will be announced on the night of the awards ceremony itself and are not included in this issue. The KL awards ceremony will take place on the 15th February 2012 while the Dubai ceremony will be on the 29th February.

So in this issue, let us celebrate the achievements of 2011 and look forward to an even better 2012. We wish all of our readers a prosperous and successful new year!

Oxford Business Group Review of Indonesia

(See: www.oxfordbusinessgroup.com): Plans are in place to develop Indonesia’s nuclear power capacity to overcome the country’s shortage of electricity and ease its dependence on hydrocarbons. However, some concerns remain as to the safety of atomic energy in a quake-prone region so soon after the disaster in Japan, with opponents to the scheme pushing alternative energy as the answer to Indonesia’s power needs.

In late November, state enterprise minister Dahlan Iskan announced that the government had given initial approval for the construction of a 200-KW nuclear power station and for a second plant with a planned output of 2 MW, as part of the state’s programme to boost electricity generation capacity.

Addressing a seminar on energy policy in parliament, the minister said that evolving technology meant that new power stations would be far safer and better able to withstand disasters than the station at Fukushima, which was badly damaged in the quake and subsequent tsunami that devastated parts of Japan in March.

Oxford Business Group Review of Malaysia

(See: www.oxfordbusinessgroup.com): With many sectors of the economy having performed solidly over the past 12 months, Malaysia is hoping for more of the same in 2012. Indeed, foreign direct investment (FDI) is up, inflation well contained, and the financial sector steady. However, at least some impact from the European debt crisis is expected, with demand for exports widely predicted to ease in 2012.

Though final figures have yet to be issued, it is expected that the Malaysian economy will have expanded by more than 5% in 2011. At the end of November, the Organisation for Economic and Cooperative Development (OECD) forecast that this solid rate of growth would continue for at least the next five years, predicting Malaysia’s GDP would expand by 5.3% in each of the next few years and hit 5.6% by 2016.

MARC DOWNGRADES THE RATING OF MNRB HOLDINGS BERHAD'S RM200 MILLION ISLAMIC MEDIUM TERM NOTES TO A+IS from AA-IS.; OUTLOOK STABLE

Dec 30, 2011 -

MARC has downgraded its rating on MNRB Holdings Berhad’s (MNRB) RM200 million Islamic Medium Term Notes (IMTNs) to A+IS from AA-IS. The outlook is stable. The rating action reflects weakened holding company level financial metrics following two consecutive years of losses for the financial years ending March 31, 2010 (FY2010) and FY2011, and thin cash flow coverage measures. The lowered rating also incorporates MNRB’s reliance on externally provided liquidity to address the forthcoming December 2012 notes maturity. The losses, due largely to lower dividends upstreamed to the holding company by principal reinsurance subsidiary Malaysian Reinsurance Berhad (Malaysian Re), had reduced MNRB’s shareholders’ funds, exerting upward pressure on the holding company’s double leverage ratio. The ability of MNRB’s operating subsidiaries to upstream higher dividends, meanwhile, continues to be inhibited by the need for Malaysian Re to maintain a larger capital buffer under a risk-based capital (RBC) regime as well as the still modest profits generated by MNRB’s operating subsidiaries relative to Malaysian Re.

The stable outlook on the rating reflects adequate mitigation of refinancing risk associated with the notes which are due in their entirety on December 10, 2012 and acknowledges the flexibility which MNRB has with regard to selling down of its stake in Takaful IKHLAS Sdn Bhd (Takaful IKHLAS) to pare down debt.

As in previous years, Malaysian Re continues to dominate the group both in terms of assets and earnings. Malaysian Re remains the main contributor of the group’s earnings, accounting for 85% of the group’s total revenue in FY2011. It contributed RM180.0 million of the reinsurance segment’s operating profit in FY2011, higher than the group’s RM158.1 million consolidated operating profit before incorporating its share of associate’s results. The reinsurer continues to maintain a leadership position in the domestic reinsurance market with a market share of over 50% of net reinsurance premiums. Malaysian Re continues to derive over 70% of its premium volume from its home market, of which voluntary cessions continue to be a key component, while growing its presence in the overseas reinsurance market. The reinsurer continues to maintain a solid financial profile that is characterised by strong risk- adjusted capitalisation, conservative investment risk tolerance and, favourable underwriting and operating profitability despite the inherent earnings volatility in certain business lines with high exposure to natural catastrophes.

MNRB’s other operating subsidiaries include Takaful IKHLAS, an eight-year-old takaful operator which has seen fairly strong growth in its family takaful business since its inception. The growth and expansion of the takaful business has necessitated significant capital support from MNRB and increased debt leverage at the holding company as a consequence. The takaful operator does not contribute enough profitability as yet to offset the capital support-related pressure on the holding company’s financial profile. During the six months to September 30, 2011 (1HFY2012), MNRB had injected RM100 million of new equity capital into Takaful IKHLAS in preparation for the upcoming implementation of the takaful RBC framework in 2012. MNRB has the option to sell down its equity holdings in the takaful operator to a strategic business partner, although the timing remains uncertain. MARC believes that the sell-down strategy could hold the key to securing a more immediate improvement in the holding company’s credit profile and adapting to a more challenging competitive landscape ahead for takaful operators.

The group recorded lower net earned premiums of RM482.1 million for 1HFY2012 compared to RM505.8 million for the preceding year’s corresponding period mostly on account of a higher amount of premiums ceded to reinsurers. The high number of weather-related natural catastrophes in Asia during the calendar year 2011 and a corresponding sharp increase in insurance claims are expected to lower full year profitability for FY2012. The group posted a net loss of RM5.9 million for the three months to September 30, 2011 (2QFY2012) on account of higher claims incurred at Malaysian Re; its cumulative net profit for the 1HFY2012 of RM37.0 million was 21.9% lower compared to the preceding year’s corresponding period.

Notwithstanding the observed volatility in year-to-year underwriting profitability, MARC expects Malaysian Re to continue to sustain a satisfactory underwriting performance by maintaining its disciplined approach to underwriting and an adequate retrocession programme. The rating agency acknowledges that in the short term, slower global and domestic economic growth and excess reinsurance capacity could weigh on the reinsurer’s earnings.

At company level, MNRB posted a smaller net loss of RM14.8 million in FY2011 (FY2010: RM59.6 million) and registered a 49.5% increase in its revenue as a result of higher dividend received of RM15.1 million (FY2010: RM10.2 million) and higher management fees charged to its operating subsidiaries. The dividend income was sufficient to fund profit payment on the holding company’s IMTNs. MNRB had modest cash and bank balance of RM75,000 as at end-March 2011. MNRB’s double leverage ratio remained elevated at 129% (FY2010:127%). With regard to the forthcoming December 2012 notes maturity, MARC derives comfort from the holding company’s favourable access to bank financing. The holding company has indicated that it will be refinancing the IMTNs with new term financing and is currently evaluating the refinancing offers obtained from several financial institutions.

The stable outlook reflects expectations that the maturing notes will be refinanced in an orderly manner and that MNRB will manage growth of its operating subsidiaries in the next 12 months such that additional pressure on holding company leverage is mitigated.

Contacts:
Lim Mei Ching, +603-2082 2267/ meiching@marc.com.my;
Milly Leong, +603-2082 2275/ milly@marc.com.my.

RAM Ratings reaffirms AAA(s) rating of LKPP's Islamic debt securities

Published on 30 December 2011

RAM Ratings has reaffirmed the AAA(s) rating of Lembaga Kemajuan Perusahaan Pertanian Negeri Pahang’s (“LKPP” or “the Group”) RM300 million Bai’ Bithaman Ajil Islamic Debt Securities (2005/2015) (“BaIDS”); the long-term rating has a stable outlook. The enhanced rating reflects the unconditional and irrevocable guarantee extended by the State Government of Pahang (“the State”), with approval from the Federal Government of Malaysia. The guarantee enhances the credit profile of the BaIDS beyond LKPP’s inherent or stand-alone credit risk.

LKPP is a state-owned entity; its operations can be broadly divided into 2 segments, social and commercial. Under the commercial division, its main focus is on the development of the agricultural sector in Pahang. The Group is mainly involved in oil-palm plantations, accounting for 96% of its revenue. The Group held 42,438 hectares of oil-palm plantations as at end-June 2011. Under the social division, LKPP is responsible for improving the living standards of the rural community by providing good infrastructure for the development of agricultural activities, and the implementation of various programmes for the development of entrepreneurs in rural areas.

“Excluding the guarantee, LKPP’s fundamentals are supported by its healthy tree-maturity profile which underpins the production of fresh fruit bunches (approximately 68% of its palm trees are in the high-yielding ”prime” and ”young” brackets), strong balance sheet position and healthy debt protection measures,” notes Shahina Azura Halip, RAM Ratings’ Head of Real Estate and Construction Ratings. The Group reported a net-cash position as at end-December 2010 while its funds from operations debt coverage ratio came up to 1.01 times.

On the other hand, LKPP’s credit fundamentals are moderated by its need to balance its social obligations with its commercial agenda, by fostering the development of rural settlers. The Group’s cost structure also remains rather steep compared to its peers. In addition, LKPP’s financials hinge on the performance of crude palm oil, which is characterised by volatile price swings as a result of industry cyclicality and speculative elements.

Media contact
Yong Keck Phin
(603) 7628 1183
keckphin@ram.com.my

WEEKLY ECONOMIC COMMENTARY, 02 JANUARY 2012 (BY DIFC)

(By DIFC): Global Stock markets ended the year on a low note - posting their first annual loss since 2008, with emerging markets also closing lower: MSCI’s Asia Pacific Index declined almost 18% in 2011, after closing on a slightly positive note in the last week. Regional markets were hit by lower volumes and liquidity towards the end of the year, with little to cheer given the still ongoing regional turmoil. The euro hit a historic 10-year low against the yen and recorded a 15-month low against the dollar, also closing as the worst performing currency in the year 2011, while the Renminbi was the best performing currency.