RAM Ratings reaffirms AA1/P1 ratings of YTL Corp’s debt issues

Published on 15 March 2012
RAM Ratings has reaffirmed the ratings of YTL Corporation Berhad’s (YTL Corp or the Group) RM500 million Medium-Term Notes Programme (2004/2019) and RM500 million Commercial Papers Programme (2005/2012) at AA1 and P1, respectively; the long-term rating has a stable outlook. YTL Corp is a conglomerate that has interests in power generation and transmission, water and sewerage, cement manufacturing and trading, property investment and development, construction, hotels, telecommunications and information technology.

The ratings are supported by YTL Corp’s strong business profile with multiple businesses and a diversified earnings base. The Group’s key subsidiaries in various industries are viewed to have strong, entrenched positions in their respective sectors. While the Group is exposed to cyclical industries such as cement manufacturing, property development and construction, this is mitigated by the steady and predictable cashflow from its utilities division.

Armed with ample cash and manageable short-term debt obligations, YTL Corp’s liquidity position is deemed strong. RAM Ratings maintains a favourable view of YTL Corp’s financial flexibility, on the basis of its ability to tap its subsidiaries for additional dividends.
Whilst the Group’s credit fundamentals are moderated by its heavy debt load, we note that most (75%) of its debts are concession-related, ring-fenced and non-resource to YTL Corp. The Group’s debt burden of RM28.25 billion as at end-June 2011 translates into a gearing ratio of 2.25 times; its net gearing ratio stood at 1.28 times, supported by the Group’s enlarged cash pile. At company level, YTL Corp’s respective gearing and net gearing ratios (on an adjusted basis) had eased to 0.66 times and 0.38 times as at end-June 2011 (end-June 2010: 1.00 time and 0.74 times), following the cancellation of corporate guarantees extended for its acquisitions in Singapore, after the completion of its property division’s restructuring.

Meanwhile, YTL Corp remains acquisitive in its quest to further expand and diversify its earning base. While this could mean potential upside for its earnings, we are cautious about the additional operations, political, regulatory and currency risks that may be introduced, not to mention the added strain on its financial position, as its future investments could well entail debt-funding (wholly or partly). Acquisitions by its subsidiaries that necessitate corporate guarantees from YTL Corp may further strain its financials. In this context, we expect that YTL Corp will consider the impact of such acquisitions on the Group’s balance sheet and ensure that any such debt will be adequately supported by the returns generated.

Media contact
Chew Wei Li
(603) 7628 1025
weili@ram.com.my