RAM Ratings reaffirms AAA(s) rating of Muhibbah’s Islamic Bonds

Published on 31 July 2012

RAM Ratings has reaffirmed the AAA(s) rating of Muhibbah Engineering (M) Bhd’s (Muhibbah or the Group) RM130 million Islamic Bonds; the enhanced long-term rating has a stable outlook.

The AAA(s) rating is supported by the irrevocable and unconditional guarantee from AAA-rated Malayan Banking Berhad (Maybank), to honour Muhibbah’s irrevocable and unconditional undertaking to purchase and cancel all the Islamic Bonds at the exercise price upon the declaration of an event of default (Purchase Undertaking). The trustee, on behalf of the bondholders, will be able to call on the bank guarantee to honour Muhibbah’s Purchase Undertaking. The guarantee from Maybank enhances the credit profile of the Islamic Bonds beyond Muhibbah’s inherent or stand-alone credit standing.

Muhibbah is chiefly involved in construction, crane manufacturing and shipbuilding. The Group also has associate stakes in a Malaysian road-maintenance concessionaire, and an operator as well as concession holder for 3 international airports in Cambodia.


Excluding the bank guarantee, Muhibbah’s credit profile is underpinned by its established track record within the construction industry, specialising in oil-and-gas (O&G) related jobs, as well as marine-engineering and civil-engineering works. Muhibbah’s outstanding order book of RM3.1 billion as at 2 July 2012 should sustain it through the next 2 years. Looking ahead, the Group is deemed well poised to secure sizeable jobs amid the brighter prospects of the local construction sector, as the industry witnesses the rollout of the major projects under the Economic Transformation Programme, Budget 2011, and the Tenth Malaysia Plan. Muhibbah also derives earnings diversity from its involvement in the crane-manufacturing and shipyard sectors, and enjoys recurring dividend income from its associates.

Nevertheless, Muhibbah’s credit profile has been affected by its stretched balance sheet. Notably, the Group’s gearing ratio has been gradually rising in recent years due to increasingly high borrowings to fund its working capital. Furthermore, Muhibbah’s balance sheet is also threatened by its seemingly dim prospects of recovery for the substantial receivable arising from the petroleum-hub project in Johor. Going forward, although Muhibbah stands to benefit from the bright outlook of the O&G sector given its niche expertise, the competitive operating environment for the construction sector will continue to exert a downward pressure on Muhibbah’s profit margins for future jobs. The Group is also exposed to the cyclical nature of the construction and O&G sectors, and foreign-exchange risk from its overseas operations.

Media contact
Yean Ni Ven
(603) 7628 1172
niven@ram.com.my