MARC AFFIRMS AAA RATING ON GERBANG PERDANA’S MTN PROGRAMME

Aug 27, 2012 -

MARC has affirmed the rating of Gerbang Perdana CIQ Sdn Bhd’s (GPCIQ) RM1.7 billion Medium Term Notes (MTN) programme at AAA with a stable outlook. The rating action affects RM14.7 million of outstanding notes under the programme. The notes are backed by facility payment certificates (FPCs) issued by the Government of Malaysia (GoM) with very strong collection history. The FPCs represent the explicit, irrevocable and unconditional obligation of the GoM to pay the stipulated amount as per the FPC in a timely manner. Accordingly, the ‘AAA’ rating incorporates the credit strengths of the GoM. The FPCs were issued based on approved and completed construction works under the Gerbang Selatan Bersepadu project (CIQ project) in Johor Bahru. Construction works commenced in January 2003 and were fully completed in November 2011.

The CIQ project comprises two key buildings and infrastructure works in Johor Bahru: the main CIQ complex (renamed Bangunan Sultan Iskandar) and the road links to the city and JB Sentral; and a marine customs complex in Tanjung Surat. The issuing entity, GPCIQ, is a special purpose vehicle set up by the project’s turnkey contractor and GPCIQ’s sole shareholder Gerbang Perdana Sdn Bhd for the purpose of raising funds for the implementation of the RM1.3 billion CIQ project. With the full completion of the project, final FPCs have been issued which are due for payment on the maturity date of the notes, as with prior FPCs and the corresponding redemption notes.

MARC will withdraw its rating on the MTN Programme upon full redemption of the notes on November 9, 2012.

Contacts:
Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my

RAM Ratings reaffirms AAA rating of Khazanah’s RM10 billion Multi-Currency Islamic Securities issued through Danga Capital

Published on 17 August 2012

RAM Ratings has reaffirmed the AAA rating of Danga Capital Berhad’s (“Danga”) RM10 billion Multi-Currency Islamic Securities Programme (“ISP” or “the Islamic securities”); the long-term rating has a stable outlook. Danga, a trust-owned special purpose vehicle, was incorporated to facilitate solely for the issuance of Islamic Securities.

The rating reflects the credit strength of Khazanah Nasional Berhad (“Khazanah” or “the Company”), in its role as the Purchase Undertaking Obligor in this transaction. Proceeds from the ISP will be utilised to purchase pools of identified Shariah-approved shares and/or assets from Khazanah. The Company will top up any shortfall in the income generated by the Musyarakah venture; it has also undertaken to purchase the specific portfolio units from Danga at a pre-agreed price upon maturity or a dissolution event.

RAM Ratings’ view on Khazanah’s credit standing is largely premised on the likelihood of extraordinary support from the Government of Malaysia (“GOM”), if required. This is based on Khazanah’s strategic importance to the GOM given the Company’s interests in sectors that are strategically significant to the nation’s economy and strong links with its sole shareholder, the GOM. Khazanah has been mandated to not only spearhead the transformation of government-linked companies (“GLCs”), but also to drive and spur one of the nation’s key developments, i.e. Iskandar Malaysia. Our assessment also takes into account the Company’s highly diversified investment portfolio that comprises listed GLCs operating in stable and defensive industries. This yields recurring dividend income for the Company, along with superior financial flexibility in tapping the debt markets for refinancing or additional funding.

Khazanah’s top line jumped 68.0% to RM8.3 billion in fiscal 2011, mainly attributable to a one-off RM3.8 billion dividend following the privatisation of PLUS Expressways Berhad and the latter’s joint acquisition by the EPF and the UEM Group. Correspondingly, the Company’s operating profit expanded RM3.4 billion, which boosted its return on capital employed to 11.8% (fiscal 2010: 3.2%). Looking ahead, we expect Khazanah’s top line and profitability to normalise, remaining dictated by the performance of its investee companies, the progress of its divestment exercise and overall market conditions.

Notably, Khazanah’s balance sheet had improved as at end-fiscal 2011, although its debt level remained reasonably high at RM32.0 billion (end-fiscal 2010: RM36 billion). Excluding amounts owed to related companies, its gearing ratio had eased to 1.1 times as at the same date, attributable to debt repayments and RM3 billion capital injection by the GOM. Concurrently, the Company’s operating profit before depreciation, interest and tax debt coverage strengthened from 0.13 times to 0.24 times over the same period. However, RAM Ratings opines that Khazanah’s improved debt-protection metrics may not remain at this level given the expected normalisation of the Company’s profitability. The valuation and timing of Khazanah’s divestments may be affected by the more subdued global economy, thereby raising the possibility of heftier borrowings to fund its future acquisitions. That said, the Company has very minimal refinancing risk given its superior financial flexibility.

Media contact

Tan Han Nee

(603) 7628 1023

hannee@ram.com.my

Uganda’s Islamic banking agenda (By IFN)

UGANDA: Yoweri Kaguta Museveni, the country’s president, has thrown his weight behind the development of Islamic banking in the country, directing his officers to complete discussions on Shariah compliant financial services by the end of September this year.

He also said that he will hold talks on Islamic banking with the ministry of finance and Shariah scholars, with an aim of rolling out Islamic banking in Uganda.

The president noted that Islamic banking’s popularity is undeniable and as such, Uganda should also jump on the interest-free bandwagon.

The country’s previous attempt at dipping its toes into Islamic finance has proven unsuccessful. In July last year, a group of Gulf investors, under the ambit of the Emirates Link for Strategic Alliance, was given approval by Uganda’s central bank to takeover up to 75% of the National Bank of Commerce (Uganda); with plans to convert the bank into an Islamic financial institution.

However, those plans have been thrown into disarray following legal action by the Gulf investors against the bank for failing to transfer ownership to the investors; despite the investors already paying for a 48% share in the bank.
With Museveni, who has been president since 1986, pushing for the rollout of Islamic finance in Uganda, the country may just have a fighting chance of seeing a strong take up of the industry. With 16% of its 27 million population estimated to comprise Muslims, the idea of Islamic banking taking flight is feasible.

Additionally, with the proportion of its population living in poverty estimated at 24.5% as at 2010, according to the World Bank, the introduction of Islamic banking, given its particular appeal to the unbanked and microfinancing sectors, may well help Ugandans gain some faith in their financial system.

See: http://redmoney.newsweaver.co.uk/zig8yjp08ewh38rwoni3wx?email=true&a=6&p=26662295&t=21823995

RAM Ratings reaffirms AAA/P1 ratings of Khazanah’s RM10 billion Sukuk Musyarakah issued through Rantau Abang Capital

Published on 17 August 2012

RAM Ratings has reaffirmed the AAA/P1 ratings of Rantau Abang Capital Berhad’s (“RACB”) RM3 billion Islamic Commercial Papers/Medium-Term Notes Programme. At the same time, the AAA rating of RACB’s RM7 billion Islamic Medium-Term Notes Programme has also been reaffirmed. Both long-term ratings have a stable outlook. The securities are collectively known as “the Sukuk Musyarakah”. RACB, a wholly-owned subsidiary of Khazanah Nasional Berhad (“Khazanah” or “the Company), was incorporated to facilitate solely for the issuance of the Sukuk Musyarakah.

Under the transaction, a Musyarakah partnership had been established between Khazanah and RACB; the capital returns and periodic profit payments on the Sukuk Musyarakah stem from an investment portfolio consisting of Shariah-approved shares and assets owned by Khazanah. The ratings of the Sukuk Musyarakah ultimately reflect the credit strength of Khazanah, in its capacity as the Purchase Undertaking Obligor; the Company will purchase the specific portfolio units from RACB at a pre-agreed price upon maturity or a dissolution event.

RAM Ratings’ view on Khazanah’s credit standing is largely premised on the likelihood of extraordinary support from the Government of Malaysia (“GOM”), if required. This is based on Khazanah’s strategic importance to the GOM given the Company’s interests in sectors that are strategically significant to the nation’s economy and strong links with its sole shareholder, the GOM. Khazanah has been mandated to not only spearhead the transformation of government-linked companies (“GLCs”), but also to drive and spur one of the nation’s key developments, i.e. Iskandar Malaysia. Our assessment also takes into account the Company’s highly diversified investment portfolio that comprises listed GLCs operating in stable and defensive industries. This yields recurring dividend income for the Company, along with superior financial flexibility in tapping the debt markets for refinancing or additional funding.

Khazanah’s top line jumped 68.0% to RM8.3 billion in fiscal 2011, mainly attributable to a one-off RM3.8 billion dividend following the privatisation of PLUS Expressways Berhad and the latter’s joint acquisition by the EPF and the UEM Group. Correspondingly, the Company’s operating profit expanded RM3.4 billion, which boosted its return on capital employed to 11.8% (fiscal 2010: 3.2%). Looking ahead, we expect Khazanah’s top line and profitability to normalise, remaining dictated by the performance of its investee companies, the progress of its divestment exercise and overall market conditions.

Notably, Khazanah’s balance sheet had improved as at end-fiscal 2011, although its debt level remained reasonably high at RM32.0 billion (end-fiscal 2010: RM36 billion). Excluding amounts owed to related companies, its gearing ratio had eased to 1.1 times as at the same date, attributable to debt repayments and RM3 billion capital injection by the GOM. Concurrently, the Company’s operating profit before depreciation, interest and tax debt coverage strengthened from 0.13 times to 0.24 times over the same period. However, RAM Ratings opines that Khazanah’s improved debt-protection metrics may not remain at this level given the expected normalisation of the Company’s profitability. The valuation and timing of Khazanah’s divestments may be affected by the more subdued global economy, thereby raising the possibility of heftier borrowings to fund its future acquisitions. That said, the Company has very minimal refinancing risk given its superior financial flexibility.

Media contact

Tan Han Nee

(603) 7628 1023

hannee@ram.com.my

Faith-based investing put to the test (By IFN)

GLOBAL: JP Morgan Asset Management has liquidated its Global Catholic Ethical Balanced Fund as it failed to gather the same momentum seen by Shariah compliant funds.

The firm said that its decision to liquidate the fund, which aimed to mirror the success of Islamic funds, followed reduced prospects of attracting new investments.

This is also despite the fund posting positive returns during its life cycle, returning 10.18% over a one-year period and 7.8% in the year-to-date. However, the Luxembourg-based fund only recorded net assets of EUR4.3 million (US$5.31 million) as at the end of May this year, compared to a target of US$30 million.

The fund’s mandate was to provide long-term capital growth through investments in a portfolio of global equities and debt securities issued by the EU governments.

Relative to the growth of Islamic funds, JP Morgan’s Catholic fund has indeed fallen short. In comparison, CIMB-Principal Islamic Asset Management, seen as a global leader in the Islamic asset management space, recorded assets under management (AUM) equivalent to US$8.82 billion as at the 30th November last year, while NCB Capital’s AlAhli Saudi Riyal Trade Fund, touted as the largest Shariah compliant fund in the world, holds US$4.4 billion in AUM through 26 mutual funds.

Nonetheless, with the Islamic asset management industry still seen as a nascent market within the wider Islamic finance space, JP Morgan’s case should serve as a reminder to the industry not to rest on its laurels.

RAM Ratings assigns AA1/Stable rating to KLK’s Multi-Currency Islamic Debt Programme

Published on 17 August 2012

RAM Ratings has assigned final long-term rating of AA1 to Kuala Lumpur Kepong Berhad’s (KLK or the Group) proposed 10-year Multi-Currency Islamic Medium-Term Notes Programme of up to RM1 billion (or its equivalent in foreign currencies) (“the Proposed Issue”), with a stable outlook.

At the same time, the ratings of the Group’s existing RM300 million Sukuk Ijarah Commercial Paper/Medium-Term Notes Programme (2011/2016) have been reaffirmed at AA1/Stable/P1.

KLK is an integrated oil-palm plantation player with established upstream and downstream activities. It is a leading planter in Malaysia and Indonesia with a sizeable plantation land bank of more than 250,000 hectares. The Group’s fresh fruit bunch yields rank among the top 5 in Malaysia and are comparable to those of its regional peers. Its established track record in the plantation sector is reflected in its commendable operating efficiency and lean cost structure. Despite the recent minimum wage policy, KLK is expected to maintain its low cost competitiveness.

“The Group’s ratings are also supported by its resilient balance sheet, strong cashflow-generating ability and healthy liquidity profile,” says Thong Mun Wai, RAM Ratings’ Head of Real Estate and Construction Ratings. “Based on recent discussion with management, we understand that the Group intends to fully draw down on the Proposed Issue. With the draw down, KLK’s debt level is envisaged to increase from RM1.97 billion (end-March 2012) to about RM2.70 billion for the financial year ended 30 September 2012. Given this, the Group’s capitalisation and debt coverage ratios are expected to be lower than earlier projected on account of the higher debt level. That said, the projected financial metrics are still supportive of its ratings,” he adds. KLK’s funds from operations debt coverage ratio is projected to range at around 0.45 and 0.50 times between 2012 and 2014 while its projected gearing ratio is envisaged to peak at around 0.30 times over the same period. KLK is expected to remain in a near net cash position. We deem the Group’s cashflow-generating ability to be strong; cashflow from operations is expected to amply fund projected capital expenditure. A portion of the RM1 billion in proceeds from the Proposed Issue will be utilised to facilitate an internal restructuring exercise; the Group has no immediate plans in respect of the remainder.

KLK’s ratings are moderated by its ambitious expansion into oleochemicals, an industry vulnerable to high feedstock prices and overcapacity, particularly in basic oleochemicals. In this regard, we believe the Group’s management will take a measured approach and maintain its robust balance sheet. The ratings also factored in inherent risks of the industry including volatile crude palm oil (“CPO”) prices which largely dictate the bottom-line of oil palm-based companies like KLK. Prices of CPO, as a commodity, are subject to many factors beyond the planter’s control. Additionally, regulatory changes including the recent change in the export tax structure in Indonesia, typify some of the additional risks associated with the industry.

Media contact

Chan Yin Huei

(603) 7628 1180

yinhuei@ram.com.my

RAM Ratings downgrades ratings of MRCB Southern Link’s Senior and Junior Sukuk

Published on 23 August 2012 

RAM Ratings has downgraded the respective long-term ratings of MRCB Southern Link Berhad’s (“MRCB Southern Link” or “the Company”) RM845 million Secured Senior Sukuk(2008/2025) (“Senior Sukuk”) and RM199 million Junior Sukuk (2008/2027) (“Junior Sukuk”), to BB3 (from A2) and C1 (from BBB2); both ratings remain on negative Rating Watch. The Company is a funding conduit for the 8.1-km Eastern Dispersal Link Expressway (“EDL” or “the Highway”) in Johor Bahru (“JB”). The Highway was opened to the public on 1 April 2012; however, the Government announced in March 2012 that EDL will not be commencing tolling as per the terms of the concession agreement.

The rating downgrades are premised on the Company’s significant liquidity stress. After the unexpected RM40 million payment to the engineering, procurement and construction (“EPC”) contractor (a related company), MRCB Southern Link has a high likelihood of defaulting on both the Senior and Junior Sukuk on 21 December 2012. We understand that Malaysian Resources Corporation Berhad, i.e. the ultimate project sponsor, does not intend to fund any shortfall in meeting the debt obligations. In the meantime, the implementation of the Government’s short- and long-term plans to resolve the non-tolling of EDL remains uncertain. Although the Government’s past actions have been equitable to concessionaires in general, we are concerned that the short-term plan to address MRCB Southern Link’s immediate cashflow position may not be executed in time, given the tight window of just 4 months before the projected default. On the other hand, details on long-term solutions have yet to be firmed up. We view that the finalising and implementing a long-term solution will be a long-drawn-out affair, given the many factors that would need to be considered by the Government.

As at end-July 2012, the consolidated cash holdings of MRCB Southern Link and the concessionaire summed up to around RM21 million, against some RM47 million of debt obligations for the remainder of this year. Had the management not made the RM40 million payment to the EPC contractor, the Company would have instead been expected to default on the Senior and Junior Sukuk in December 2013.

The rating difference between the Senior and Junior Sukuk is due to the latter’s subordination in terms of cashflow priority and security. The widening of the rating gap between the Senior and Junior Sukuk, from 3 to 4 notches, reflects the Junior Sukuk’s role as a loss-absorption piece, as well as the increased likelihood that MRCB Southern Link may not be able to meet its debt obligations.

Finally, the negative Rating Watch indicates that the ratings could come under further downward pressure in the very near-term, if neither the short- nor long-term solution can be implemented promptly.

To address the Company’s precarious liquidity situation, the management is working on amending the terms of the Senior and Junior finance service reserve account bank guarantees (“FSRA BGs”), to allow the project and account monitoring agent to draw down from the facilities before the anticipated default on 21 December 2012. In any case, even if the Senior and Junior FSRA BGs were amended, the Company’s projected default on the Senior and Junior Sukuk would only be deferred to June 2013. It also remains uncertain if the Senior and Junior FSRA BGs can be amended in time, as this is subject to approval from the facilities’ provider, who is also the Company’s bondholder and lender to the RM220 million syndicated term loan.

Media contact
Michael Ti
(603) 7628 1015
michael@ram.com.my

News Alert - August 17, 2012

KLCI succumbs to late profit taking, slips below 1,650-level

Guan Chong aborts Singapore dual-listing

CCM 2Q pretax profit falls 47%, revenue down 3%

Bernas 2Q net profit plunges 152.7% y-o-y to RM25.12m

BIMB Securities Research downgrades Supermax to Neutral, TP RM2.28

Global Investment House discloses debt-for-equity exchange plan (By IFN)

KUWAIT: Global Investment House has disclosed details of its debt-for-equity swap that could see the firm cede 70% of its ownership to creditors and write off KWD108.2 million (US$382.78 million)-worth of debt.

In a filing to the Dubai Financial Market, Global, which owes an estimated US$1.7 billion-worth of debt in conventional and Islamic facilities, announced that it will convene an extraordinary general meeting (EGM) on the 2nd September 2012 to approve its debt-for-equity proposal. Its shareholders will also meet on the same day for its annual general meeting (AGM).

In its EGM agenda, Global proposed the cancellation of 17.33 million shares worth KWD11.48 million (US$40.56 million), comprising shares from its paid-up capital account and KWD1.06 million (US$3.75 million) from its treasury shares reserve. It also proposed to transfer losses resulting from the cancellation of KWD8.69 million (US$30.76 million)-worth of treasury shares to its share premium account.

Additionally, Global seeks to write off KWD31.09 million (US$110.02 million)-worth of its accumulated losses against its remaining share premium and write off KWD77.12 million (US$272.47 million)-worth of losses against its paid-up capital.

The kicker however, is its proposal to issue KWD122.24 million (US$431.88 million)-worth of new shares to its creditors, raising its capital to KWD174.62 million (US$616.95 million) in a move that would give creditors 70% ownership in the firm.

“The subscription in the capital increase shall be made in full from the creditors’ account and the company’s existing shareholders waive their pre-emption right to subscribe in the capital increase in favour of a special purpose company (or more [companies]) established for the benefit of the financial creditors and to delegate the board of directors to set the requirements, rules and conditions for the calling of the capital increase,” it said.

In addition, Global has asked its existing shareholders to approve the transfer of part of the firm’s assets and investments to a special purpose vehicle set up for its creditors; provided that the current fair value of the assets and investments do not exceed the amount of its lower liabilities as a result of the transfer.

As at the 31st March 2012, its total assets amounted to KWD550.26 million (US$1.26 billion).

Meanwhile, at its AGM, the firm will seek shareholder approval on a recommendation to withhold bonuses to its board of directors and to freeze dividend distributions for its 2011 financial year. It has also asked shareholders to discharge its board from liabilities relating to their financial and legal actions during that year.

See: http://redmoney.newsweaver.co.uk/1ruwykel3xjh38rwoni3wx?email=true&a=6&p=26596475&t=21811325

News Alert - August 15, 2012

. KLCI extends gains for fifth day, crosses 1,650-level
. Media Prima up on interim dividend, 2Q earnings
. Media Prima 2Q net profit up 27.76% y-o-y to RM56.79m
. AMMB Holdings 1Q net profit up 4.6% y-o-y to RM448.58m
. KKB Engineering lands Sarawak contract worth RM48m
. Genting to net gain of RM1.9b from sale of power business
. Patimas private placement traps investors
. Media Prima in early talks with Worldview Broadcasting Channel
. Ashok: Financial sector in challenging growth phase
. Revaluation gains boost Sunway REIT's book value

MARC ASSIGNS PRELIMINARY RATING OF AAAIS TO PUTRAJAYA HOLDINGS SDN BHD’S PROPOSED RM3.0 BILLION SUKUK MUSHARAKAH PROGRAMME; AFFIRMS EXISTING ISLAMIC DEBT AND SUKUK RATINGS

Aug 13, 2012 -
MARC has assigned a preliminary rating of AAAIS to Putrajaya Holdings Sdn Bhd’s (PJH) RM3.0 billion Sukuk Musharakah Programme with a stable outlook. Concurrently, MARC has affirmed its AAAID and AAAIS ratings on PJH’s existing Islamic debt issuances with a stable outlook. A complete list of the affirmed ratings and rated issuances is provided at the end of this announcement.

Proceeds from the issue of notes under PJH’s new RM3.0 billion Sukuk Musharakah programme will be utilised to fund the construction of selected government and commercial buildings in Putrajaya as well as fully settle/refinance existing issues. Sublease rentals from six identified government buildings are sufficient to cover the principal payments of obligations under the Sukuk Musharakah programme. There is no ring-fencing of the sublease rental collections into a designated account to provide security to sukukholders; however, PJH will provide a negative pledge on the six identified buildings in favour of the sukukholders. Accordingly, MARC has assigned a senior unsecured sukuk rating of AAAIS to the programme.

The AAAIS senior unsecured sukuk rating reflects PJH’s strong historical profitability derived from subleasing government buildings in accordance with its build-lease-transfer concession agreement (CA), and its strong operating track record as the master developer of the federal government administrative capital. The rating also incorporates PJH’s exposure to development risk associated with the commercial component of the planned development programme and the weakened free cash flow which is expected to persist at PJH until 2015 based on the funding requirements for its development programme. Additionally, MARC expects to see an increase in PJH’s financial leverage over the near-to-intermediate term on account of ongoing financing needs for development.

MARC expects the pressure on PJH’s free cash flow generation and liquidity to be partly mitigated by the financial flexibility afforded to the company to re-issue notes under the Sukuk Musharakah programme. The programme limit will be progressively reduced only following the 13th year of the first issue under the programme. The rating agency also continues to view the financial strength of PJH’s key shareholders, Khazanah Nasional Berhad (Khazanah), the Malaysian government investment arm, and Petroliam Nasional Berhad (Petronas) as a positive rating factor.

PJH’s funding needs for previous development of government buildings and quarters have been met by Islamic debt issuances, while the repayment of obligations under these issuances have been adequately funded by the sublease rental payments from the government as the lessee under lease-and-sublease agreements between the Federal Land Commissioner and PJH for periods that correspond to or are longer than the maturity of the issues. The six identified buildings are projected to generate cumulative rental lease income of approximately RM5,390.0 million over the tenure of the proposed programme to meet principal repayments of RM4,465.0 million of total sukuk to be issued under the programme.

For the nine months ended December 31, 2011, PJH recorded a revenue of RM1,250 million (FYE March 2011: RM1,479.1 million). The annualised revenue growth of 12.7% reflects the higher rental payments received following the commencement of sublease rental payments from buildings that were awarded certificates of practical completion and delivered to the government during the financial period. Lease rentals made up 69.4% of total revenue during the nine-month period. PJH saw lower contract revenue with construction works of government quarters reaching the tail-end stage. The company’s operating profit margin declined to 50.0% in FYE December 31, 2011 (FYE March 2011: 64.5%), due to the one-off gain of RM235.3 million from the disposal of Menara PJH and Lot 3C4 in FYE March 2011.

PJH’s operating cash flow (CFO) generation remained strong at RM1,145.5 million for the nine months ended December 31, 2011 (FYE March 2011: RM1,093.0 million). Although there was higher repayment of borrowings during the period of RM1,340 million, net cash outflow from financing activities was lower at RM334.0 million (FYE March 2011: RM648.5 million) due to additional debt issued and lower dividend payment. PJH’s gearing showed a marginal decline to 1.12 times at end-December 2011 (FYE March 2011: 1.21 times). Assuming full issuance of the RM3.0 billion under the Sukuk Musharakah programme, PJH’s pro-forma debt-to-equity ratio would increase to 1.72 times.

MARC considers PJH’s financial flexibility to be strong given the availability of unutilised short-term credit lines of RM940 million (excluding amounts of the rated facilities available for drawdown) and its significant gearing covenant headroom.
The stable rating outlook incorporates a weakening in PJH’s free cash flow generation and debt service coverage from current levels, balanced against the stable cash flows generated by existing completed government buildings, its low business risk and strong financial flexibility.

The affirmed ratings with stable outlook are as follows:
• RM570 million Bai’ Bithaman Ajil (BBA) Bonds Issuance Facility (due 2013) at AAAID
• RM850 million BBA Bonds Issuance Facility (due 2013) at AAAID
• RM850 million BBA Serial Bonds Issuance Facility (due 2015) at AAAID
• RM1.5 billion Murabahah Notes Issuance (MUNIF) Facility (due 2015) at AAAID
• RM2.2 billion Murabahah Medium Term Notes (MMTN) Programme (due 2021) at AAAID
• RM1.5 billion Sukuk Musyarakah MTN Programme (due 2033) at AAAIS

News Alert - August 14, 2012

. KLCI closes higher but pares gains
. MSM Malaysia 2Q net profit falls 31.1% y-o-y to RM52.81m
. German businesses remain optimistic on Asean economic outlook
. Moody's sees Malaysia 2Q GDP growth at 5%, full year 4%
. S P Setia proposes placement, new ESOS scheme
. 1MDB buys Genting's power assets
. Karambunai to settle RM157m debt with help of shareholder
. Economists expect inflation to ease in July

RAM Ratings reaffirms Media Prima’s ratings

Published on 13 August 2012

RAM Ratings has reaffirmed the AAA(bg) rating of Media Prima Berhad’s (“Media Prima” or “the Group”) RM170 million Bank-Guaranteed Medium-Term Notes Programme (2007/2012) (“BG MTN”), with a stable outlook. At the same time, the P1 rating of the Group’s RM180 million Commercial Papers Programme (2007/2014) has also been reaffirmed. The enhanced rating of the BG MTN reflects the unconditional and irrevocable guarantee extended by Malayan Banking Berhad, which enhances the credit profile of the debt issue beyond Media Prima’s inherent or stand-alone credit position.

Media Prima’s stand-alone credit profile and P1 rating reflect its strong market position in the media industry, as well as its solid financial profile. It is highly diversified, with interests in a broad spectrum of media such as free-to-air television (“TV”) broadcasting, newspaper publication, radio broadcasting, outdoor advertising, and content creation and online portals, and continues to lead in almost every media sub-segment it operates in.

The Group’s financial profile also stayed robust. Backed by its enlarged shareholders’ funds amid the conversion of employee share options and warrants, narrower accumulated losses, as well as a lighter debt load, Media Prima’s adjusted gearing ratio had eased to 0.45 times as at end-FYE 31 December 2011 (“FY Dec 2011”) (FY Dec 2010: 0.55 times). At the same time, its adjusted funds from operations debt cover (“FFODC”) also strengthened to 0.59 times (FY Dec 2010: 0.52 times) mainly attributed to the lower debt level.

However, the Group is susceptible to economic cycles, newsprint price movements and intense competition within the media sector, particularly from other major media groups such as Star Publications (M) Berhad, Astro All Asia Networks Plc and Radio Television Malaysia. “The competitive backdrop is further exacerbated by the emergence of more new media platforms such as online news portals and new channels via broadband-based TV services, such as UniFi and Yes, over the last few years. This year, the prospective debut of YTL Communications Sdn Bhd’s hybrid-TV service, new entrant Asian Broadcasting Network (M) Sdn Bhd’s pay-TV service and Maxis Berhad’s Internet-portal TV service is set to widen advertisers’ choices further. To keep up with the competition, Media Prima has to continuously invest in quality content,” notes Kevin Lim, RAM Ratings’ Head of Consumer & Industrial Ratings.

Looking forward, akin to its plans a year ago, Media Prima has allocated RM100 million-RM120 million of capital expenditure per annum for the next 3 years, to continue replacing its broadcasting and transmission equipment in progress to be digital-TV ready. This is anticipated to be funded via internal cash, without requiring debt funding. As such, the Group’s balance sheet is expected to stay sturdy.

Despite the softer advertising environment (as seen in the more modest financial results in 1Q FY Dec 2012), Media Prima is still expected to grow in the near term backed by major sporting events this year, particularly the UEFA Euro 2012 (which was held in June) and the 2012 Summer Olympic Games, as well as a prospective general election. However, given the Group’s plans to increase spending on content to garner higher TV ratings coupled with costly broadcast rights to Euro 2012, Media Prima’s profitability may dilute year-on-year. Furthermore, we expect newsprint costs to rise. Notwithstanding the cost increase, the Group’s adjusted FFODC is expected to improve to around 0.4 times for FY Dec 2012.

Media contact
Low Pui San
(603) 7628 1051
puisan@ram.com.my

Celcom Transmission (Malaysia) eyes Sukuk issuance by the end of the month (See IFN)

MALAYSIA: Islamic Finance news has learnt that Celcom Transmission (Malaysia), a subsidiary of telecommunications firm Axiata Group, has sent out an information memorandum to investors for a RM5 billion (US$1.61 billion) Sukuk program.

A source close to the deal also confirmed an earlier news report that CIMB, HSBC and Maybank Investment Bank are managing the transaction. An issuance is expected by the end of this month.

Proceeds from the sale will be used to refinance existing debt, with the issuance already assigned a preliminary ‘AAA’ rating from local rating agency MARC, according to a report by Bloomberg.

Celcom Transmission, which is a unit of Celcom Axiata, Axiata’s Malaysian mobile telecommunications arm, is no stranger to the Sukuk space. In 2010, it set up a landmark RM4.2 billion (US$1.35 billion) Sukuk Ijarah deal to part-finance its acquisition of Celcom’s telecommunication network business.

News of the transaction follows Axiata’s announcement in July of its establishment of a US$1.5 billion multi-currency Sukuk program. Islamic Finance news earlier reported that the firm has no immediate requirement to issue papers from the program, which it will only tap as and when necessary. The Sukuk will be backed by airtime vouchers.

In a research report, OSK Research noted that: “The Sukuk program is in line with the group’s longer-term capital management roadmap to achieve a more optimal balance sheet. We believe Axiata is pre-empting its future funding needs by locking in an attractive Islamic facility to position for potential mergers and acquisitions as well as address its overall capital expenditure needs.

“At the same time, the group would be able to expand the portfolio of investors who are able to appreciate the growth potential across its regional assets. We are of the view that the setting up of a unique trust asset sweetens the deal, allowing the group to further monetize its network of assets across the region.”

Apart from in Malaysia, Axiata has controlling interests and strategic stakes in mobile operators in Bangladesh, Cambodia, India, Indonesia, Singapore, Sri Lanka and Thailand.

See: http://redmoney.newsweaver.co.uk/inuguq8q71qh38rwoni3wx?email=true&a=6&p=26557985&t=21804375

News Alert - August 13, 2012

. IGB REIT feeds into thirst for yield
. Shangri-la draws attention as stock rises
. Sime, E&O poised to be in the limelight
. Markets higher despite economic growth worries

Another property acquisition for Sabana Shari’ah Compliant REIT (By IFN)

SINGAPORE: Sabana Real Estate Investment Management announced the acquisition of an industrial building in the city state for SG$61 million (US$49.03 million), to be injected into its Sabana Shari’ah Compliant Real Estate Investment Trust (REIT).
The five-story building, bought from local food packaging manufacturer Ban Teck Han Enterprise Company, is located within the Serangoon North Industrial Estate which houses a cluster of industrial facilities.

The acquisition will bring the total number of properties in the REIT’s portfolio to 21 from 20. Sabana expects to complete the acquisition in the fourth quarter of this year.

In a statement, Sabana said that the four-year-old property has a good sub-tenancy profile comprising multinational corporations. “The transaction is expected to benefit unitholders by improving asset and tenant diversification to reduce the reliance of Sabana Shari’ah Compliant REIT’s income stream on any single asset or lessee. The transaction will also increase the weighted lease tenor of the REIT’s portfolio and reduce the REIT’s lease expiry concentration in 2013,” it said. Its existing portfolio expires in approximately 39.7 years, while the new property has a balance land tenor of 44.2 years.

Sabana also said that it intends to fund the acquisition through debt. Touted as the largest listed Shariah compliant REIT by assets globally, the REIT raised SG$664.4 million (US$533.98 million) in gross proceeds during its initial public offering in November 2010.

In July this year, S&P, rated the REIT at ‘BBB-’ with a stable outlook, reflecting the trust’s good quality and well-located industrial property assets, in addition to its stable cash flow and occupancy rate of 99%. However, it noted that: “Sabana’s limited geographic and tenant diversity and somewhat limited financial flexibility temper these strengths. The short record of the manager operating the REIT through a property cycle remains a credit weakness. We assess the REIT’s business risk profile as ‘satisfactory’ and its financial risk profile as ‘intermediate’.”

See: http://redmoney.newsweaver.co.uk/13194ppoc1bh38rwoni3wx?email=true&a=6&p=26521115&t=21794845