MARC AFFIRMS ITS A+IS RATING ON MNRB HOLDINGS BERHAD’S RM200 MILLION IMTN

Dec 5, 2012 -

MARC has affirmed its A+IS rating on MNRB Holdings Berhad’s (MNRB Holdings) RM200 million Islamic Medium Term Notes (IMTN) with stable outlook pending the completion of the refinancing of all outstanding notes into a revolving bank credit facility. The proposed refinancing will allow the investment holding company to extend its debt maturity profile, alleviating refinancing risk.

At the same time, MARC also acknowledges the holding company’s high double leverage and low liquidity, due in large part to modest amounts of dividends upstreamed by operating subsidiaries in recent periods arising from regulatory capital buffer requirements of its operating subsidiaries. MARC also notes minimal dividend retention by the holding company.

MNRB Holdings posted pre-tax losses for the financial year ended March 31, 2010 (FY2010) and FY2011, before turning a profit of RM30.6 million for FY2012. Internal cash flow generation in the last two years has been low and minimal cash balances were maintained as at end-June 2012.

The holding company’s leverage position has deteriorated mainly as a result of debt-funded equity investments in its subsidiaries. The company drew down RM110.0 million under a revolving credit facility and invested RM100.0 million in Takaful Ikhlas Sdn Bhd (Takaful IKHLAS) and RM10.0 million in Malaysian Reinsurance Berhad (Malaysian Re) during FY2012. As a result, MNRB Holdings’ double leverage and company-level debt-to-equity ratios deteriorated to 147% and 0.52x respectively in FY2012 from 129% and 0.32x respectively in the previous year.

At group level, operating revenue decreased by 2.1% to RM1.43 billion in FY2012 (FY2011: RM1.46 billion) mainly due to lower gross written premiums (GWP) of its core subsidiary, Malaysian Re, following the reduction of the voluntary cession (VC) business. The VC level dropped to 2.5% from 4.0% for Motor and Personal Accident with effect from January 1, 2011. The lower operating revenue was also due to lower wakalah fee income from the group’s takaful subsidiary, Takaful IKHLAS.

Group net profit decreased 31.7% to RM84.0 million (FY2011: RM122.9 million) in FY2012 due to principal subsidiary Malaysian Re’s losses arising from Thai floods, moderated by higher investment income and lower commission and management expenses during the year. Total investment income increased by 1.8% to RM98.1 million (FY2011: RM96.4 million) in FY2012, while commission and management expenses decreased by 7.5% and 11.0% respectively.

During the first quarter of the financial year 2013 (1QFY2013), the group registered a net profit of RM50.4 million, 17.3% higher than the previous year’s corresponding period, mainly due to lower net claims, higher investment income and higher operating revenue. The group generated higher operating revenue of RM404.4 million, a 1.4% increase from the previous year’s corresponding period due to higher gross written premiums from Malaysian Re.

Upon completion of the refinancing, MARC will withdraw the rating on the notes.

Contact:

Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.