Monday, April 30, 2012


Apr 30, 2012 -

MARC has lowered its ratings on Kinsteel Berhad’s (Kinsteel) RM100 million Murabahah Commercial Papers/Medium Term Notes Programme (CP/MTN) and RM100 million Murabahah Medium Term Notes (MTN) Programme to MARC-2ID/A-ID and A-ID from MARC-2ID/AID and AID respectively. The outlook for the ratings is negative. Concurrently, the rating agency has removed Kinsteel’s ratings from MARCWatch Negative where they were placed on February 3, 2012. The rating actions incorporate Kinsteel group’s deteriorating financial performance on the back of raw material price volatility and subdued demand for steel products, increased borrowings and weakening liquidity position from extending financial support to fully subscribe to subsidiary Perwaja Holdings Berhad’s (PHB) loan stock issue.

For the financial year ended December 31, 2011 (FY2011), Kinsteel group registered unaudited pre-tax losses of RM228.6 million mainly due to disproportionate increases in raw material costs, in particular iron-ore prices, relative to finished steel product prices, as well as impairment costs and higher financing costs of RM132.7 million (FY2010: RM123.6 million). MARC notes that the average purchase price of billets used in Kinsteel’s downstream activities rose by 11.1% in FY2011 from the previous year against an increase in the average selling price of steel products of 8.6% in the same corresponding period. For FY2011, Kinsteel had recorded a write-down on inventories of RM94.2 million following the sharp decline in iron-ore price in 4Q2011. MARC observes that operational cash flow (CFO) has been positive over the last three years owing largely to reduced working capital utilisation due to declining production levels in light of persistently weak demand. However, the group has increased its reliance on bank borrowings, particularly trade financing, which has risen by 70% from RM733.5 million in FY2007 to RM1,248.4 million in FY2011, to support stock build-up during the same period.

In tandem with increased borrowings, Kinsteel group’s leverage position as reflected by debt-to-equity (DE) ratio increased to 1.38 times (x) in FY2011 (FY2010: 1.12x). MARC expects the group’s leverage position to worsen in the near term following the financing of its upstream expansion into construction of an iron ore concentration and pelletising plant by Perwaja Steel Sdn Bhd (Perwaja), which manufactures direct-reducing iron (DRI) and semi-finished steel products. Funding requirements for the plant are expected to be met from a combination of internally generated funds and term loans.

At the holding company level, Kinsteel’s pre-tax profit declined to RM9.2 million (FY2010: RM16.3 million) while CFO was in deficit of RM6.9 million (FY2010: surplus of RM42.9 million) on the back of decreased payables and intercompany balance. MARC remains concerned on the elevated DE ratio at holding company level of 1.95x as at end-FY2011 (FY2010: 1.96x). Kinsteel has fully subscribed to RM280.0 million redeemable convertible unsecured loan stocks (RCULS) issued by PHB, the holding company of Perwaja, using internally generated funds. About 175.5 million nominal value RCULS or 62.7% were subsequently offered for sale to other existing PHB shareholders but received an initial subscription of 3%. Kinsteel has now managed to place approximately RM64.7 million nominal value RCULS which translates to 36.9% of the potential cash inflow of RM175.5 million. Consequently, Kinsteel’s inability to recover the substantial costs incurred to subscribe to the RCULS is expected to weigh on its liquidity position. MARC notes that proceeds from the RCULS issuance will be utilised at Perwaja’s level to meet its working capital requirements, including paying off intercompany loans to Kinsteel.

The negative outlook incorporates MARC’s concerns on the uncertain immediate prospects the Kinsteel group faces to strengthen its business and financial profile to a level that would commensurate with the current rating band. The ratings could be lowered if further deterioration in Kinsteel’s financial metrics were to occur in the near term.

Thian Chow Di, +603-2082 2280/;
Rajan Paramesran, +603-2082 2233/


Apr 25, 2012 -

MARC has removed its MARC-4ID/BBID ratings on Maxtral Industry Berhad’s (Maxtral) RM20.0 million Murabahah Underwritten Notes Issuance/Murabahah Medium Term Notes (MUNIF/MMTN) programme from MARCWatch Negative and subsequently downgraded both ratings to D. The downgrade reflects the missed outstanding principal payment of RM10.0 million on April 23, 2012, following the expiry of the two additional working days extension for payment that noteholders had earlier consented to. No event of default has been declared as of the date of this press announcement.

Goh Shu Yuan, +603-2082 2268/;
Sharidan Salleh, +603-2082 2254/

Local events on April 30

• Syarikat Takaful Malaysia Bhd unveils Takaful myGenLife and a campaign 'We Should Talk' at Penthouse, 28th Flr, Annexe Block, Dataran Kewangan Darul Takaful, Jln Sultan Sulaiman, KL at 9.30am.
• Silver Bird Group Bhd AGM at Silver Bird Complex, Lot 72 Persiaran Jubli Perak, Seksyen 1, Shah Alam at 10am.
• Tasek Corporation Bhd AGM at Grand Millennium KL at 10am.
• AmFirst Real Estate Investment Trust unitholders meeting at Manhattan III, Level 14, Berjaya Times Square Hotel, KL at 10.30am.
• Kumpulan H&L High-Tech Bhd AGM at Green II, Clubhouse, Tropicana Golf & Country Resort, PJ at 11am.



Markets were volatile, though strong corporate earnings results overshadowed the soft data releases, especially the muted GDP growth in US, and the S&P downgrade of Spain’s sovereign debt last Thursday. Regional markets were mixed, with Q1 profits announcements key; many UAE listed companies, including real-estate firms, announced better-than-expected earnings. The US$ weakened on soft US data though the euro held surprisingly strong in spite of the downgrade; the pound, meanwhile, hit a 22-month high against the euro. Gold prices were up and EIA’s announcement that increased Saudi output helped global oil supply exceed demand by 500k bpd in Feb-Mar also led to some minor fluctuation in oil prices.

Global Developments

The US posted lacklustre GDP growth for Q1 at 2.2% yoy (Q4: 3.0%) on the back of a slowdown in inventory investment. Real personal consumption expenditure rising 2.1% qoq in the same period (1.3%).
Bernanke said US monetary policy was "more or less in the right place" but the Fed is ready to launch another QE round if the economy falters.
The S&P/Case-Shiller 10-City Composite Home Price Index slid for the sixth consecutive month, dropping 3.6% yoy in Feb 2012 (Jan: -4.1%). New home sales experienced a sharp decline of 7.1% mom (Feb: +7.3%), amounting to 328k units, saar, in March.
Durable goods orders slumped in March 4.2% mom (Feb: +1.9%), a record since Jan 2009, due to a drop in demand for civilian aircrafts and parts.
Initial jobless claims dropped by 1k to a seasonally adjusted 388k. The 4-week moving average rose 6,250 to 381,750, the highest since Jan 7.


UK GDP in Q1 contracted 0.2% qoq after a 0.3% drop in Q4 2011, implying recession. Construction was the biggest drag with a 3% qoq drop.
Flash Composite PMI for Euroland in Apr was 47.4 versus 49.1 in Mar, signalling that the recession in Europe is worsening. Flash German Manufacturing PMI came in at 46.3 in Apr (Mar: 48.4), contracting at the fastest pace since July 2009. The French index rose to 47.3 (46.7).
German inflation eased mildly to 2.0% yoy in April (Mar: 2.1%) as energy prices rose at a slower pace.
According to the ECB’s Ewald Nowotny, the EU will never issue general obligation euro-zone bonds because Germany is opposed to this.
BIS reported that in Q4 2011 banks cut lending to Italy by USD 68.5bn, to Spain by USD 54bn, to Portugal by USD 12bn and to Greece by USD 18.6bn.
S&P cut Spain’s credit rating to BBB+ on account of a dismal economic outlook and the current state of its budget deficit, down two notches from A. Spanish unemployment hit 24.4% in Q1 2012 (Q4: 22.9%), reinforcing the S&P downgrade. Inflation accelerated to 2% in Apr (Mar: 1.8%).

Asia and Pacific:

S&P changed the outlook for India to negative and threatened to downgrade its sovereign debt unless the widening fiscal deficit, currently at 6% of GDP, is brought under control. Fiscal discipline however is sapped by a political gridlock which makes it impossible to reduce subsidies and modernize tax collection.
China’s Flash HSBC Manufacturing PMI rose to 49.1 in Apr (Mar: 48.3), indicating a contraction in the sector, but at a slower rate.
The National Consumer Price Index in Japan saw a mild 0.5% yoy increase in March (Feb: 0.3%), while its unemployment rate came in flat at 4.5%. Japanese construction orders were down 0.3% yoy in March (-1.8%), rising 7.1% for the whole of FY2011. Housing starts were up 5% yoy for the month (7.5%). Bank of Japan left interest rates unchanged at 0.1%.
Japanese IP rose 1% mom (Feb: -1.6%), surging 13.9% on a yoy basis, while Thai IP fell 3.2% yoy and Singapore’s dropped 3.4% yoy (Feb: +11.8%), but rose 2.7% mom.
South Korean GDP rose 0.9% qoq and 2.8% yoy during Q1 2012 (Q4: 0.3% qoq & 3.3% yoy) as manufacturing and exports (+3.4% qoq) expanded, but was weighed down by the 0.7% qoq drop in construction investment.
Taiwanese Industrial Production (IP) fell 3.42% yoy in Mar led by a 3.77% drop in manufacturing.
Singapore’s March CPI inflation accelerated to 5.2% yoy from 4.6% year in Feb, led by higher costs of housing (+9.1%) and transport (+8.6%).
Thailand’s trade deficit in Mar ballooned to USD 4.6bn as imports surged 25.6% yoy and exports decreased by 6.5% yoy. Thai Capacity Utilization for the month increased to 68.1, from Feb’s 62.5.

Bottom line: The week was a mildly worrisome on the macro front: soft GDP data from US and UK in recession, S&P action on Spain and India, but equities held strong on company profit announcements. Politics could play havoc as Greece and France prepare to go to polls next week; meanwhile, Romney is de facto anointed as the Republican nominee; Sarkozy is trailing the Socialist challenger Francois Hollande; in Egypt, the Presidential candidates have been announced, with 13 names including that of former Prime Minister Ahmed Shafiq.

News Alert - April 27, 2012

1. KLCI finishes in red on pre-election sentiment
2. Forum-Asia: Govt must stop threats, harassment, and allow Bersih 3.0 rally to proceed
3. NCB at 15-year high on dividends
4. CIMB Research maintains Outperform AirAsia, target price RM5
5. Galaxy phones power Samsung to record RM15.74b profit
6. Hearing of RM30m defamation suit against Guan Eng postponed to May 18

Thursday, April 26, 2012

Sukuk issuances reach record US$12.7 billion in the year-to-date (By IFN)


GLOBAL: The volume of Sukuk issuances has reached a record US$12.7 billion in the year-to-date (YTD), boosted by a landmark US$1.25 billion dual-tranche Islamic bond sale by the Dubai government on the 24th April.

Data from Dealogic shows that the level of Sukuk offerings so far this year is more than three times the previous record of US$4.2 billion issued during the same period in 2011.

“Domestic issuance continues to dominate Sukuk volume and accounts for 63% (US$8 billion) of total volume in 2012 YTD. Despite this, the share of internationally marketed Sukuk issuance, dominated exclusively by the issuers from the MENA region, has risen to 37%, the highest share since 2008 (43%) as volume has more than trebled year-on-year to US$3.5 billion,” noted Dealogic in its DCM StatShot.

The unprecedented level of Islamic bond sales has fuelled optimism that 2012 will be another record-breaking year for the international Sukuk mart. Professor Dr Malik Muhammad al Awan, the Shariah advisor at Hong Leong Islamic Bank and Hong Leong MSIG Takaful, believes that the market will close at US$125 billion this year; driven by sales from the GCC.

The activity in the Sukuk market has also seen competition heat up between Malaysian and Saudi offerings. Malaysian Sukuk sales that have traditionally dominated the market recorded a 42% share of domestic issuances in the YTD, a record low; while Saudi sales accounted for 59% or US$4.7 billion of local Sukuk sales during the period.

Nonetheless, Dr Malik noted that Malaysia will continue to be an attractive platform for Sukuk sales, due to the pricing of Islamic bonds in the country and its accommodative tax environment.

Meanwhile, the DCM StatShot showed that HSBC led in rankings for international Sukuk bookrunner, with a 31.8% market share; followed by Deutsche Bank and Citi with market shares of 18.6% and 13.2%, respectively.

News Alert - April 26, 2012

1. KLCI dips to below 1,580-level, blue chips drag
2. Navis Capital to trigger GO for SEGi today
3. S&P cuts India's outlook to negative
4. AirAsia, MAS fall, focus on share-swap, oil prices
5. PM likely to announce promised windfall for Felda settlers on May 8

Wednesday, April 25, 2012

Stepping into uncharted territory (By IFN)


As Africa develops into one of the world’s most exciting economies, the growth of Islamic finance has closely followed suit. The industry has spread rapidly across the continent; tapping markets still uncharted yet full of promise.

This week, our cover story looks at Nigeria and Kenya’s efforts to develop Islamic finance in their respective countries, in what has emerged as a race to become Africa’s hub for Shariah compliant finance.

Our focus on Africa also includes a feature on the prospects for Egypt’s Ijarah market by Dr Shahinaz Hanem Rashad Abdellatif of the Egyptian Leasing Association; and an IFN Correspondent report on developments in Tanzania’s Islamic banking market.

Meanwhile, Osama Jamshaid of Kuwait Finance House (Malaysia) writes a brief overview of developments in our industry and the steps still needed to promote further growth; while Osman Akyüz of the Participation Banks Association of Turkey looks at the growth of Turkish Islamic banks.

Abu Bakr Abdel Rahmen, an Egypt-based Islamic financial analyst, contributes our Takaful feature on the role of Islamic insurance in the economic development of Islamic countries.
Insider talks to Azrulnizam Abd Aziz, the newly appointed CEO of Al Rajhi Bank Malaysia and Mudassir Amray, its head of wholesale banking, on the bank’s growth plans this year. We also have an IFN Report on Indonesian corporate Sukuk issuances.

This week, our IFN Correspondents write on developments in Australian and Qatari Islamic finance markets, Bermuda as a domicile of choice for Islamic funds, investment banks in the Iranian capital market and the debut Sukuk from Mauritius car dealer Iframac.

Meet the Head talks to Adnan Alias, CEO of the Islamic Banking and Finance Institute Malaysia.

News Alert - April 25, 2012

1. KLCI closes lower, but pares down loses
2. Cagamas largest issuer of corp debt securities in 2011
3. HELP to grow non-degree segment, says president
4. HSBC Trade Forecast: M'sia's trade growth will be 139.37pct from 2012 to 2026
5. North Korea's nuclear test ready 'soon', says source

Tuesday, April 24, 2012


Apr 20, 2012 -

MARC has affirmed its ratings on the following rated programmes with a stable outlook:

RM100.0 million Sukuk Ijarah Commercial Papers (Sukuk ICP) and RM300.0 million Sukuk Ijarah Medium Term Notes (Sukuk IMTN) Programmes of TSH Sukuk Ijarah Sdn Bhd (TSH Ijarah) at MARC-1IS/AA-IS; and
RM100.0 million Guaranteed Islamic Medium Term Notes (IMTN) Programme of TSH Sukuk Musyarakah Sdn Bhd (TSH Musyarakah) at AAAIS(fg).
The rating actions affect outstanding notes of RM245.0 million issued under TSH Ijarah and RM50.0 million issued under TSH Musyarakah.

The issuers are special purpose funding vehicles created to facilitate the issuance of notes under the rated programmes on behalf of parent company, TSH Resources Berhad (TSH or the group). The group is involved in oil palm cultivation and bio-integration, wood product manufacturing and trading, and cocoa manufacturing and trading, with the bulk of its revenue and earnings derived from its palm oil-based operations.

The affirmed sukuk ratings of TSH Ijarah reflect the standalone credit profile of TSH and its standalone short and long-term senior debt ratings of MARC-1 and AA-. TSH’s standalone ratings incorporate the continued good performance of its oil palm plantation business, its sustained operating cash flow (CFO) generation and satisfactory debt service coverage on a consolidated basis. These credit strengths are moderated by the lacklustre operating performance of its wood products and cocoa business, its continuing negative free cash flow and the sensitivity of its financial performance to palm oil price cyclicality. The stable outlook reflects MARC’s expectation that TSH will continue to exhibit revenue and earnings growth as returns are generated from plantation capital expenditure made during earlier periods. MARC opines that TSH’s ability to generate positive free cash flow, improve its liquidity metrics and maintain its financial flexibility will depend on sufficiently supportive industry conditions as well as controlled plantation development expenditure on the part of the group.

The affirmed sukuk rating of TSH Musyarakah, meanwhile, reflects an unconditional and irrevocable guarantee provided by Danajamin Nasional Berhad (Danajamin). The supported rating is premised on Danajamin’s financial strength, which MARC has rated at AAA/stable on the basis of its strong capital resources and claims-paying ability relative to its risk exposure, and its status as a government-sponsored financial guarantee insurer (FGI). Sukukholders of TSH Musyarakah are insulated from any downside risks in TSH’s consolidated credit profile by virtue of the guarantee provided by Danajamin. Any changes in the supported rating or rating outlook will be primarily driven by changes in Danajamin’s credit rating/outlook.

TSH’s strong operating profitability and financial position have been largely driven by its plantation business in recent years. Based on unaudited results, TSH’s oil palm plantation business contributed 90% of consolidated revenue (FY2010: 83%), and nearly all of consolidated profit for the financial year ended December 31, 2011 (FY2011). MARC notes the robust growth in TSH’s fresh fruit bunch (FFB) production which grew by 16%, 21% and 43% in FY2009, FY2010 and FY2011 respectively. As at December 31, 2011, its mature hectarage accounted for about 54% of its total planted hectarage while 46% of its planted hectarage comprises palm trees aged below four years. The maturity profile of the group's planted oil palm estates is expected to provide an annual 18.5% and 21% increase in mature hectarage and FFB production respectively in the near-to-intermediate term. The focus of the oil palm segment’s expansion activity has been in Indonesia, which accounts for 95% of the group’s total land bank of 98,454 hectares (ha) as at end-2011. Approximately 70% of the group’s landbank is unplanted. In this context, MARC notes that the group has exercised prudence in its planting programme to forestall deterioration in its credit metrics.

TSH’s revenue for FY2011 increased by 26.4% to RM1.15 billion (FY2010: RM908.4 million) while its pre-tax profit increased by 54.2% to RM162.4 million (FY2010: RM105.3 million). Operating profit margins also continued to improve year-on-year to 14.5% in FY2011 from 12.6% in FY2010 and 10.4% in FY2009. The improved financial performance was attributable solely to the revenue and earnings growth of palm oil plantation business which has more than offset the lacklustre financial performance of other divisions. Revenue from the wood products continued to decline year-on-year in FY2011, falling to RM49.6 million from RM66.6 million in FY2010, with segment losses widening to RM5.2 million (FY2010: -RM4.4 million). Revenue from the cocoa division also declined to RM63.1 million from RM85.4 million in FY2010, resulting in lower profit of RM2.1 million (FY2010: RM8.8 million). Both these divisions are export-based, with significant exposure to the Europe and US markets, which have been experiencing challenging economic conditions.

TSH’s free cash flow remained negative in FY2011, however, the deficit was smaller than previous years at RM3.7 million compared to negative RM26.6 million the year before. The group has been moderating its budgeted 5,000 ha per year oil palm planting programme to ease pressure on its leverage and cash flow metrics. The group’s debt-to-equity ratio, meanwhile, improved to 0.78 times (x) as at end-2011 from 0.85x on account of internal capital generation during the year. As in previous years, the group continues to exhibit a strong commitment to preserve its standalone credit ratings, which MARC has taken into consideration in attaching a stable outlook to the sukuk ratings of TSH Ijarah.

Goh Shu Yuan, +603-2082 2268/;
Francis Xaviour Joe, +603-2082 2279/


Apr 19, 2012 -

MARC has affirmed its sukuk ratings of AA+IS on Westports Malaysia Sdn Bhd’s (Westports) Sukuk Muyarakah (Sukuk) Programme of up to RM2.0 billion and Sukuk Musyarakah Medium Term Notes (MTN) Programme of up to RM800 million. The rating outlook for both issues is stable. The affirmed ratings incorporate Westports’ strategic location and strong operational track record that has made it Port Klang’s leading terminal and a major local and transhipment hub, and the port’s fairly robust container volume throughput. Furthermore, Westports’ expansion programme will position the port operator strongly to attract and service the largest of post-Panamax vessels. These credit strengths are constrained by the company’s susceptibility to volatility in cargo volumes, whether as a result of downturns in global trade or fewer shipping lines calling on the port, client concentration, heavy capex programme and fairly aggressive dividend policy.

Westports continued to register strong growth in container throughput which rose to 6.4 million twenty-foot-equivalent units (TEU) in 2011 against earlier projections of 6.0 million TEU (2010:5.6 million TEU). Westports’ transhipment activity benefited from a pickup in the global trade along the Asia-Europe shipping route and growth in local import and export activity as a result of increasing trade between Malaysia and China. Westports’ competitive advantage over domestic and regional ports is derived from its strong operational efficiencies, Port Klang’s strategic location along one of the world’s busiest shipping routes and competitive pricing vis-à-vis its main competitor, Singapore Port.

The port operator posted a 14.4% increase in its revenue to RM1.12 billion for the financial year ended December 31, 2011 (FY2011); Westports’ pre-tax profit however, showed a 6.8% decline year-on-year to RM358.86 million. Westports’ cash flow from operations (CFO) improved marginally to RM444.2 million (2010: RM433.7 million); however, the company’s free cash flow turned negative, from positive RM234.6 million to negative RM345.5 million on the back of its expansion programme and a significant dividend payout in 2011. As at December 31, 2011, Westports’ balance sheet cash amounted to RM349.7 million after redeeming RM100 million of borrowings under its MTN programme in March 2011 with borrowing availability under existing credit facilities and the rated programmes at RM2.1 billion. Westports has also redeemed a further RM100 million of its MTN programme in March 2012. MARC believes that Westports’ liquidity profile will remain satisfactory in coming quarters in spite of its large planned capital spending in FY2012. Its capex of RM639.9 million on land reclamation works, construction of the second phase of Container Terminal 6 (CT6) and corresponding container yard and port machinery will be funded through additional borrowing of RM200 million, internally generated funds and the expected receipt of a government grant.

MARC expects Westports’ operating margin to remain under pressure over the next two financial years with the first phase of CT6 in ramp-up phase and construction of the second phase scheduled for completion by January 2013, in combination with the competitive pricing environment. Manpower costs, marketing rebates and fuel costs have been on the rise of late. The rating agency further notes that Westports is expected to operate at a higher level of leverage over the upcoming quarters on account of heavy capital expenditure and anticipated negative free cash flow. Of key importance to Westports’ credit quality will be the port operator’s ability to consistently generate the level of growth in containerised cargo volumes needed to offset the impact of increased debt taken to finance the port’s expansion and the incremental operating costs of CT6. MARC is somewhat concerned that weaker global growth could limit potential growth in container volume throughput in the coming quarters and constrain Westports’ ability to raise port tariffs as attracting and retaining traffic assumes top priority.

The stable outlook assumes that Westports’ will exhibit satisfactory container volume and revenue growth to maintain appropriate credit metrics for the current ratings. A significant departure from expectations could lead to downward pressure on the ratings.

Sandeep Bhattacharya, +603-2082 2247/;
Jason Kok, +603-2082 2258/;
Ahmad Tajuddin Yeop Adnan, +603-2082 2256/

Monday, April 23, 2012

MARC has affirmed its rating on Kapar Energy Ventures Sdn Bhd's (KEV) RM3,402.0 million Bai' Bithaman Ajil Islamic Debt Securities (BaIDS) at AA+ID with a stable outlook

The affirmed rating takes into account the recent improvement in KEV's operating and financial performance, as well as the rating agency's expectation of a very high probability of parental support from Tenaga Nasional Berhad (TNB). Since MARC's last rating action, KEV's financial performance has significantly turned around as a result of higher electricity sales and reduced power generation outages. KEV posted a pre-tax profit of RM134.3 million for the 12 months ended August 31, 2011 (FY2011) after two consecutive years of losses. MARC continues to view KEV as a strategic subsidiary of TNB and maintain its view that there is a very high likelihood that TNB would provide timely capital and funding support to KEV if needed, on account of KEV's strong operational and ownership ties with TNB (rated AAA/Stable).

The stable outlook reflects MARC's expectation that the KEV's multi-fuel thermal power station will demonstrate a satisfactory performance record in the coming quarters and the rating agency's current stable outlook on TNB's issuer and long-term senior debt ratings of AAA. The rating on the BaIDS will be sensitive to negative developments in KEV's stand-alone credit profile, a change in TNB's rating and/or its supportive stance towards KEV. The rating outlook acknowledges the ongoing pressure on TNB's financial profile stemming from unresolved gas supply shortages, however, MARC sees no immediate need to revisit its opinion on support, based on its view that KEV's improving operating and financial performance signals a reduced likelihood that near-term support would be required of TNB to meet forthcoming BaIDS maturities in the next 12 to 18 months.

KEV was established to acquire and operate the Stesen Janaelektrik Sultan Salahuddin Abdul Aziz, or KPS, the largest multi-fuel thermal power station in Malaysia with a 2,420-megawatt (MW) nominal capacity. KPS currently operates four generating facilities (GF) capable of running on coal, natural gas or oil. Distillate, a standby fuel, is also used as a back-up fuel for gas turbines. Fuel supply risks are mitigated by long-term supply agreements with TNB and TNB Fuel Services Sdn Bhd. All fuel costs incurred in generating electricity are passed through to TNB. Under a 25-year Power Purchase Agreement (PPA), KEV receives payments from sole offtaker TNB, comprising monthly capacity payments (CP) and energy payments (EP). CPs are designed to cover fixed operating costs, debt service payments and provide returns to shareholders while EPs cover fuel costs and variable operating costs. However, actual monthly CPs have been negatively affected by a higher level of unplanned outages than allowed under the PPA.

The plant's overall unplanned outage rate improved to 9.83% in FY2011 compared to 15.37%, although outages of GF2 and GF3 still exceeded their PPA specified levels. Capacity revenue increased 24.0% to RM630.6 million. EPs contributed 81.2% of the total revenue due to higher dispatch level of 11,789.9 GWh, up from 6,706.5 GWh in FY2010 to compensate for the shortfall in electricity generation by other gas power plants in Peninsular Malaysia. As a result, KEV recorded a higher operating profit before interest and tax (OPBIT) of RM426.4 million, notwithstanding a 9.2% increase in operating costs due to higher staff costs, administration and operational expenses. Finance costs were lower due to impact of the adoption of FRS139 on interest costs of the redeemable unsecured loan stocks (RULS) as well as the continued debt pay-down. Consequently, KEV recorded its first pre-tax profit of RM134.3 million since FY2008. However, KEV's profitability continues to be constrained by its significant finance costs.

KEV has been meeting its obligations on the BaIDS from its internally generated cash flow while deferring debt servicing on its redeemable unsecured loan stocks (RULS). Unpaid interest due to shareholders on their holdings of KEV's RULS continues to grow despite RULS holders' consent to lower the compounding interest rate from 15% to 5% per annum on unpaid interest after the due date. As of August 31, 2011, KEV owes its shareholders, TNB and Malakoff Berhad, RM476.0 million and RM317.3 million in interest expense on the RULS respectively, up from RM375.4 million and RM250.3 million respectively a year ago. The RULS are subordinated to all KEV's debts, and any redemption is subject to the satisfaction of a distribution test. The full equity credit given to KEV's outstanding RULS of RM892.6 million in the gearing calculation for covenant compliance has enabled KEV to remain in compliance with its gearing covenant of 80:20 (actual: 75:25 as at July 9, 2011).

Despite its improved profitability in FY2011, KEV generated lower cash flow from operations (CFO) of RM456.3 million compared to FY2010's RM533.2 million as a result of an increase in working capital requirements. The aforementioned increase in working capital was contributed by an increase in inventory and higher fuel purchases during the financial year. KEV's average collection period for receivables, meanwhile, improved to 71 days (FY2010: 90 days) notwithstanding the higher trade receivables due from TNB of RM852.1 million (FY2010: RM458.9 million) at year end. Reflecting the lower level of CFO generation, KEV's CFO interest coverage and finance service coverage ratio (FSCR) declined to 2.77 times (x) and 1.25 times respectively (FY2010: 2.97x and 1.37x respectively). MARC notes with some concern KEV's continuing negative net working capital position and the increase in the interest component of coal billing payables to RM81.6 million as of end-August 2011 from RM42.7 million a year ago. Cash balances in KEV's designated accounts which totalled RM317.1 million after its January 6, 2011 BaIDS redemption are sufficient to meet its next BaIDS obligation of RM203.9 million on July 6, 2012, comprising RM136 million of principal repayment and RM67.9 million of profit payment.

Contacts: David Lee, +603-2082 2255/; Sandeep Bhattacharya, +603-2082 2247/

Friday, April 20, 2012


Apr 18, 2012 -

MARC has affirmed its ratings of MARC-2ID/AID on Symphony House Berhad's (Symphony) RM100.0 million Islamic Commercial Papers/MediumTerm Notes (Islamic CP/MTN) Programme and revised the outlook to negative from stable. The rating action affects RM20 million of outstanding IMTNs.

The outlook revision reflects the slower-than-expected pace of recovery in Symphony's operating performance and its financial metrics in 2011. Since MARC's last review, losses had widened considerably from the pre-tax loss of RM3.73 million reported for the nine months to September 30, 2010 (9MFY2010) to RM20.55 million for the full year of 2010. The rating agency had expected the group's earnings and cash flow generation to improve meaningfully against 9MFY2010, underpinned by a pick-up in business process outsourcing (BPO) activity as well as satisfactory renewal and account retention levels. However, for 9MFY2011, the group reported a modest pre-tax profit of RM1.76 million and an after-tax loss of RM0.72 million. Its net cash flow from operations (CFO) of RM2.21 million was lower than that of the preceding two years. While recognising the non-recurring nature of some of the factors which caused the weaker performance in recent periods, MARC is concerned that the observed slower-than-expected pace of recovery will leave the group's credit metrics weakly positioned for an extended period of time.

The affirmed ratings, meanwhile, incorporate Symphony's fairly strong competitive positions in several BPO segments including cheque processing, contact management, human resource, and financial & accounting services, through its operating subsidiaries. The ratings also recognise the group's well-diversified customer base, while reflecting the smaller scale of its BPO operations relative to global outsourcing services providers, increasing competition in the domestic BPO industry and margin pressures.

The group's performance for 9MFY2011 was below MARC's expectations. Symphony recorded a pre-tax profit of RM1.76 million on revenue of RM139.74 million, against a pre-tax loss of RM3.73 million on revenue of RM126.09 million for 9MFY2010. Symphony BPO Solutions Sdn Bhd (SBPO) which accounts for over 70% of Symphony's consolidated revenue, recorded losses in 9MFY2011 in spite of posting higher revenue. The consolidated results were impacted by losses from the closure of SBPO's loss-making contact management business in Japan, the non-renewal of cheque processing service contracts and increasing operating costs. Symphony's human resources, and financial and accounting BPO segments, nonetheless, were able to maintain relatively stable margins. Consolidated cash flow coverage measures have also weakened significantly from historical levels, as evidenced by 9MFY2011's marginal CFO interest coverage ratio of 1.09 times and negligible CFO debt coverage. Cash and cash equivalents stood at RM27.1 million relative to total borrowings of RM44.2 million, which, together with the expectation that FY2012 CFO generation will improve against FY2011, somewhat moderates the refinancing risk with respect to outstanding notes. The notes programme expires in 2013.

The ratings could be lowered in the event that Symphony's credit metrics do not strengthen meaningfully relative to end-September 2011 levels. Alternatively, the outlook could revert to stable in the event that the group demonstrates substantial improvement in earnings and cash flow generation, allowing a marked strengthening of its financial metrics.

Ruben Khoo, +603-2082 2265 /;
Sandeep Bhattacharya, +603-2082 2247/


Apr 18, 2012 -

MARC has affirmed Tenaga Nasional Berhad’s (TNB) issuer rating of AAA and the utility's Islamic debt ratings at AAAID for the following outstanding issues: i) RM1.0 billion Al-Bai’ Bithaman Ajil Notes Issuance Facility; and ii) RM2.0 billion Al-Bai’ Bithaman Ajil Bonds. The outlook is stable. The affirmed ratings continue to incorporate support uplift for TNB's obligations, deriving from its key role in the national energy policy as the country's principal energy supplier. The fully integrated electricity utility operates Malaysian’s national grid and accounts for 48.3% of the generation output in Peninsular Malaysia. MARC’s support assessment also considers TNB’s status as a government-controlled entity and the Malaysian government's golden share in TNB which carries veto power over major decisions at the company. The ratings are further supported by TNB’s stable revenue base, sound operational record and strong financial flexibility.

Rating stability is underpinned by TNB’s continuing economic importance which should ensure a high degree of government support to sustain current ratings going forward, notwithstanding the persisting challenge of securing sufficient and timely tariff increases to cover the cost of supply. MARC acknowledges the challenges that continue to confront TNB stemming from domestic gas supply shortages and the high import costs of natural gas. TNB’s operating profitability and debt service coverage weakened notably for the financial year ended August 31, 2011 (FY2011) as a result of the curtailment of gas supply. MARC expects continued pressure on the utility’s credit metrics in the absence of mitigating developments with respect to its exposure to volatile and rising fuel prices.

In FY2011, TNB’s revenue grew by 6.2% to RM32.21 billion (FY2010: RM30.32 billion) due to steady electricity demand in Peninsular Malaysia and Sabah in line with the country’s GDP growth and an upward revision in electricity tariffs on June 1, 2011. The natural gas curtailment resulted in TNB switching to oil and distillates which are priced about five times higher than the price of subsidised natural gas. This led to a significant reduction in EBITDA margin from 26.8% in the previous year to 16.1% in FY2011. Based on MARC’s estimates, the usage of oil and distillates in place of natural gas is expected to cost TNB an approximate additional RM10 million per day. MARC views the recent sharing of oil and distillate costs among TNB, PETRONAS and the Malaysian government between January 2010 through October 2011 an interim measure to reduce financial pressure on TNB arising from the on-going gas curtailment. TNB is still expected to face gas supply shortages until the commissioning of Malaysia’s first liquefied natural gas (LNG) import terminal in Melaka by September 2012.

Post commissioning of the aforementioned LNG import terminal, MARC is mindful that TNB will need to purchase the imported natural gas at market prices which are about four times higher than the current subsidised gas prices of RM13.70 per million metric British Thermal Units (mmBTU). Although the government announced in June 2011 a new fuel cost pass-through (FCPT) mechanism for the power sector, it remains to be seen whether there will be full pass-through of fuel costs increases in the end-user tariff during subsequent semi-annual reviews. The last annouced electricity tariff had reflected an upward revision of natural gas prices to power sector by 28.0% to RM13.70 per mmBTU while maintaining the coal costs at its existing tariff-compensated level of USD85 per metric tonne (MT), a level unchanged since March 2009. In FY2011, in addition to the higher cost of oil and distillates, TNB incurred further USD414 million in burning coal due to the increase in average coal price to USD106.9 per MT from USD88.2 per MT in FY2010. Capital expenditure on ongoing projects, system improvements and new supply works which increased by 31.3% to RM5.59 billion (FY2010: RM4.26 billion) had, in addition, to its lower operating cash flow generation, resulted in negative free cash flow of RM2.02 billion in FY2011 (FY2010: positive RM3.35 billion). TNB’s cash and bank balances declined to RM3.95 billion (FY2010: RM8.34 billion) consequently.

TNB’s debt-to-equity ratio improved to 0.63 times (FY2010: 0.70 times) as the group pared down its borrowings by RM2.17 billion during the year through repayments and repurchase of existing borrowings. In view of the group’s upcoming capital expenditure plans, including the RM6.6 billion 1,000MW Janamanjung expansion and RM4.3 billion planned hydroelectric projects in Ulu Jelai and Hulu Terengganu, TNB’s borrowings are expected to increase until FY2015, in light of its projected annual capital expenditure of RM4.5 billion excluding these new power plants.

While a more transparent and predictable tariff process would be desired as opposed to ad-hoc adjustments and/or cost relief to offset cost pressures as recently seen at TNB, MARC continues to maintain its view that full and timely support for TNB’s obligations would be forthcoming from the Malaysian government when required. However, as the form and timing of recent support suggests, TNB's credit measures will be subject to greater volatility and will likely to remain under pressure over the immediate term.

Ahmad Tajuddin Yeop Aznan, +603-2082 2256/;
David Lee, +603-2082 2255/;
Sandeep Bhattacharya, +603-2082 2247/

RAM Ratings revises outlook on Naim’s Islamic securities to negative; ratings unchanged

Published on 13 April 2012

RAM Ratings has revised the outlook on the long-term rating of Naim Holdings Berhad’s (“Naim” or “the Group”) RM500 million Islamic Medium-Term Notes Programme (2010/2025) (“IMTN”), from stable to negative. However, the respective long- and short-term ratings of AA3 and P1 for the IMTN and RM100 million Islamic Commercial Papers Programme (2010/2017) (collectively, “the Islamic Securities”) remain unchanged.

Naim is a property-development and construction group based in Sarawak. It also holds a 34%-stake in Dayang Enterprise Holdings Berhad, a listed provider of oil and gas support services. The revised outlook is premised on Naim’s weakened financial profile as a result of the slow progress of its contracts in hand, absence of notable new contracts, deferred property launches and delayed project implementation. Moving forward, the Group’s credit profile is likely to be constrained by its slower construction division and plans for hefty debt-funded capital expenditure. The Group is also facing keener competition within the construction sector, resulting in thinner margins. While we believe Naim still stands a good chance of clinching new jobs under various economic initiatives, including the Sarawak Corridor of Renewable Energy, the timing of their implementation is uncertain.

The Group’s weak showing since 1Q FY Dec 2011 resulted in a 33.1% year-on-year (“y-o-y”) plunge in its top line to RM409.65 million for the full year (FY Dec 2010: RM612.69 million); its construction division suffered operating losses since 3Q. This deviates substantially from our initial expectations. We note that Naim’s construction division had realised lower contract billings following delays caused by land issues, bleak weather and design changes. The division also did not manage to secure any notable new contracts last year. At the same time, the property division’s progress billings had declined due to delayed launches of new projects. The Group’s dwindling top line and fixed overheads as well as heftier interest costs led to an operating loss before tax of RM4.31 million in fiscal 2011 (FY Dec 2010: RM96.89 million profit).

Naim could deliver a better showing this year if its projects progress as scheduled. This is based on the management’s timeline for its RM685.4 million order book (as at end-December 2011), higher unbilled sales from properties launched in 2H 2011 and the accelerated development of its property projects. Even based on this pipeline, however, it is still likely to come below our earlier projections. The recovery of Naim’s financials hinges on its ability to replenish its order book. Although the Group seeks to secure about 8% of the RM6 billion of projects tendered, the uncertain timing of contract awards and/or implementation may dampen its replenishment efforts.

Moving forward, Naim plans to incur hefty debt-funded capital expenditure to acquire land and investment properties; its gearing ratio could exceed 0.6 times while its operating profit before depreciation, interest and tax debt coverage may sink below 0.15 times over the next 3 years. These ratios are weak for the rating. As at end-December 2011, Naim’s debt load had swelled to RM347 million (end-December 2010: RM125.11 million), with corresponding gearing and net gearings of 0.45 and 0.17 times, respectively (end-December 2010: 0.17 and 0.12 times).

Naim’s ratings may face downward pressure if its recovery is slower than anticipated and/or its financial metrics weaken beyond the acceptable level for the ratings. Alternatively, the rating outlook may be reverted to stable if the Group is able to replenish its order book, sustain the uptrend in its unbilled sales and demonstrate robust improvement in its business and financial profiles. RAM Ratings will be conducting our annual review of the Islamic Securities within the next 3 months.

Media contact
Ben Inn
(603) 7628 1024

Friday, April 13, 2012

RAM Ratings reaffirms AAA rating of Cagamas MBS's CMBS 2007-1-i, with stable outlook

Published on 13 April 2012
RAM Ratings has reaffirmed the AAA rating of Cagamas MBS Berhad’s RM2.11 billion Islamic residential mortgage-backed securities (“RMBS”), i.e. CMBS 2007-1-i, with a stable outlook. The reaffirmation is premised on the available overcollateralisation (“OC”) ratio of 28.14% (as at the reporting date of 29 November 2011), supported by the overall performance of the collateral pool, and the credit enhancement afforded by the transaction structure. The stable outlook reflects RAM Ratings’ opinion that the trends in defaults and losses, as well as prepayments on the government staff Islamic home financing facilities (“GSIHFs”), will continue to fall within our expectations.

The OC ratio is calculated against RM2.03 billion of outstanding GSIHFs and RM246.69 million of cash and permitted investments. This level of OC provides sufficient protection against the risk of prepayment, negative variance of investment returns and defaults under an “AAA” stressed scenario.

As at 31 July 2011, the portfolio of GSIHFs comprised 24,696 accounts, with an average outstanding balance of RM82,367 per account; the portfolio’s weighted-average remaining term came up to 16.76 years. As at the same date, the cumulative net default rate for the underlying financing portfolio stood at 0.43%, as a percentage of the principal balance on the purchase date – this is well below RAM Ratings’ base-case assumption. While the cumulative prepayment rate on the underlying GSIHFs stood at 3.85%, i.e. lower than RAM Ratings’ base-case assumption, prepayments in the last 2 years have been hovering at higher levels than the initial years. We expect prepayments to pick up as the pool becomes more seasoned through time.

More recently, it was announced that civil servants under the revised Malaysian Remuneration System (Sistem Saraan Malaysia) will receive 7%–13% salary increments, expected to be paid out sometime in April 2012. However, given that the profit rates on the GSIHFs are below current market levels and mounting concerns over the rising cost of living, RAM Ratings expects the salary adjustment to cause minimal spikes in prepayment levels.

As highlighted in our last review, a lower-than-assumed prepayment rate - albeit with no material impact on the transaction’s rating at this juncture - exposes the transaction to higher liquidity risk. On this front, RAM Ratings will maintain close monitoring of this transaction to ensure that its rating reflects the overall credit quality of the collateral pool and the credit support afforded by the structure.

Based on the closing cash balance of RM246.69 million (inclusive of permitted investments) as at 29 November 2011 and an expected monthly net cash inflow of approximately RM10 million, we expect the transaction to accumulate sufficient funds by 29 May 2012 to redeem the RM255 million Tranche 2 RMBS falling due. Upon full redemption of Tranche 2, RM1.525 billion of the RMBS (i.e. Tranches 3 to 7) will remain outstanding.

Media contact
Lee Sook Wei
(603) 7628 1017

Why Germany Should Leave the Eurozone (By Time Magazine)

Saw this article by the Time Magazine (see: Very interesting argument why Germany should leave the Eurozone. Have a read and to your own conclusion.


Most discussion about a potential breakup of the Eurozone assumes that Greece and other financially troubled countries would be the ones who ended up abandoning the common euro currency. But there’s a compelling alternative to that conventional wisdom – that the true problems of the Eurozone could be best addressed if Germany were the one to leave, accompanied, perhaps, by a few other rich countries.

The argument for the weak countries leaving is that they would be able to escape the austerity policies imposed by Germany. Once they had abandoned the euro, their new national currencies would quickly depreciate, making their economies more competitive internationally because their exports would be cheaper for foreigners to buy. In the process, of course, the weak countries might have to default on their euro-denominated debt, but that would be the inescapable price of freedom. Presumably, the richer European countries would then try to establish a smaller, more viable common currency zone.

The trouble with this conventional scenario is that it rests on a couple of big misconceptions – namely, that the chief problems of the weak countries are budget deficits and debt, and that if budgets are balanced and debt is managed down, those countries will be able to make interest payments on their bonds and the banks that own those bonds won’t have to suffer big losses.

In reality, though, the biggest problem of financially troubled European countries is not debt, but high labor costs. Easy credit over the past decade allowed those costs to rise rapidly in some countries, which were then less able to export their goods or compete with cheap imports. Between 2000 and 2007, higher labor costs reduced competitiveness by 10% to 20% in Italy and Spain. And even with all the austerity policies since 2008, Spain and Italy have been able to improve their competitiveness only by a few percentage points, if at all. Those countries will never be able to compete economically until they get their labor costs down significantly. And it’s very difficult politically to get workers to accept 10%-to-20% wage cuts.

Well, there is one way: Financially weak European countries could devalue their currencies, which would bring down labor costs across the board almost invisibly. That’s a lot easier for a population to accept than overt wage cuts industry by industry. Moreover, in the absence of devaluation, countries will spend the next decade chipping away at labor costs in an atmosphere reminiscent of the Great Depression. The only catch is that devaluation is precisely what the euro was designed to prevent.

So why shouldn’t the weaker countries just pack up and leave? Trouble is, although their new currencies would immediately fall in value, the euro would remain strong. And as soon as people anticipated a devaluation, they would withdraw money from local banks and instead deposit it in the banks of countries that were going to keep the euro. Moreover, countries that left the Eurozone would still be stuck with debts to foreigners that would be denominated in euros – but they would have to pay back those loans with their own devalued national currencies, which would make the debt burden seem even heavier.

At the very least, the result would be capital flight and higher interest costs. And more likely, countries that left the Eurozone would be unable to make all the payments on their debt and would end up defaulting anyway. That would be incredibly disruptive to the global banking system, and the countries that defaulted would probably be locked out of the credit markets for several years.

By contrast, if Germany were the one to leave, the euro would be the currency that fell in value, relative to Germany’s new national currency and also to the dollar. The weaker European countries would get to keep the euro but still get the devaluation they need, which would reduce their labor costs far less painfully than through wage cuts. In addition, the value of their outstanding debt would decline along with the value of the euro, and they would be more likely to be able to make payments on that debt and avoid defaulting.

The standard argument against this solution is that as the value of euro-denominated debt fell along with the euro, banks in many countries would have big losses on bonds they own. But losses from falling bond prices are less disruptive than sudden defaults. And the fact is those losses have really already occurred, they just haven’t been acknowledged. The goal at this point is not so much to prevent losses, but to find a way for banks and other international financial institutions to absorb their losses without triggering sudden bank failures or a global financial crisis. In short, it’s not about the money, it’s about stability. And for once, it may be easier to maintain order without the help of Germany.

Thursday, April 12, 2012


Apr 10, 2012 -

MARC has affirmed its rating on Boustead Holdings Berhad’s (Boustead Holdings) RM1.0 billion Bank Guaranteed Medium Term Notes (BG MTN) programme at AAA(bg) with a stable outlook. The rating reflects the credit strength of the syndicated bank guarantee facility provided by OCBC Bank (Malaysia) Berhad (OCBC Malaysia), Public Bank Berhad (Public Bank), Malayan Banking Berhad and The Bank of East Asia (BEA) Labuan Branch. MARC maintains financial institution ratings on all four banks of AAA/Stable, of which the ratings on OCBC Malaysia and Public Bank are based on public information. Any subsequent rating actions on the rated programme will reflect a 'weak link' approach to credit enhancement; the rating on the BG MTN programme cannot be higher than that of the lowest rated supporting financial institution. The rating action affects RM840.0 million of BG MTN outstanding under the rated programme.

Boustead Holdings is a holding company which owns a diverse portfolio of subsidiaries and associates engaged in plantation, property, pharmaceutical, trading & manufacturing, heavy industries and finance & investment businesses. Following MARC’s initial rating on the BG MTN programme, the 61.4%-owned subsidiary of the Malaysian Armed Forces Fund Board, Lembaga Tabung Angkatan Tentera (LTAT) completed two major acquisitions during 2011. The holding company had initially acquired up to 97.8% Pharmaniaga Berhad (Pharmaniaga), a company which holds a ten-year concession with the Ministry of Health (MOH) for the supply and distribution of approved drugs and medical products to government hospitals and clinics, but is in the process of reducing its stake to comply with Bursa Malaysia’s 25% public spread requirement for listed companies. It also completed its acquisition of a 51% interest in helicopter services provider MHS Aviation Berhad which mainly services the oil and gas industry.

Boustead Holdings' consolidated results for the financial year ended December 31, 2011 (FY2011) improved with revenue increasing 38.4% to RM8,555.8 million (FY2010: RM6,181.8 million) and pre-tax profit growing 14.4% to RM831.0 million (FY2010: RM726.2 million). The improved financial performance was underpinned by the maiden contribution from Pharmaniaga and growth across nearly all its business divisions, which compensated for the weaker-than-expected performance of the heavy industries division due to cost escalations on certain commercial shipbuilding projects. Comparing the group’s operating cash flow (CFO) to the year before, MARC notes that CFO generation was restored in FY2011 to RM903.0 million (FY2010: RM173.4 million; FY2009: RM604.9 million), however, the group’s capital expenditure and cash outlays on the construction of investment properties continued to weigh on its free cash flow generation. The group remained free cash flow negative in FY2011, although the deficit was notably smaller at RM241.4 million compared to RM521.1 million the year before. The acquisitions and capital spending have led to increased debt levels, as evidenced by the increase in Boustead Holdings’ consolidated debt-to-equity ratio to 0.98x (FY2010: 0.67x). MARC expects capital spending to moderate somewhat in FY2012, which, coupled with an adequate consolidated operating performance over the next several quarters, should aid the strengthening of its cash flow protection metrics.

Since the initial rating, holding company level credit metrics have weakened somewhat. MARC notes that cash outlays for the holding company’s investments in FY2011 were funded by additional borrowings, of which 59.8% were short-term borrowings. This caused the holding company’s debt-to-equity ratio to almost double to 0.91 times (x) (FY2010: 0.47x) and its finance costs to increase significantly. MARC opines that further drawdowns under the rated programme and additional borrowings could translate to increased pressure on operating subsidiaries to upstream dividends to meet the holding company’s debt servicing obligations. Further, the rating agency believes that Boustead Holdings’ reliance on short-term borrowings to finance investments of longer gestation periods could expose the holding company to higher liquidity and refinancing risks, although this is somewhat mitigated by its continued good access to bank loans and the domestic capital market. In FY2011, cash dividends received from its subsidiaries and associate companies totalled RM255.9 million compared to RM264.0 million in the previous financial year. However, the holding company paid out dividends of RM302.6 million (FY2010: RM337.7 million) and interest on borrowings of RM102.1 million (FY2010: RM63.4 million), which in the rating agency’s opinion continues to reflect an aggressive dividend policy. MARC believes that a sustained improvement in the overall dividend generation capacity of Boustead Holdings’ subsidiaries, acquisition discipline and a prudent dividend policy will be fundamental to strengthening the holding company’s cash flow protection measures.

Noteholders are insulated from the downside risks in relation to Boustead Holdings’ credit profile by virtue of the irrevocable and unconditional bank guarantee provided by the consortium of banks. Any changes in the supported rating or rating outlook will be primarily driven by changes in the consortium of banks’ credit rating/outlook.

Se Tho Mun Yi, +603-2082 2263/;
Sabesh Parameswaran, +603-2082 2260/;
Francis Xaviour Joe, +603-2082 2279/

Who watches the watchers? (By IFN)


In last week’s issue of Islamic Finance news, we brought up the role of the fourth estate in helping to police authorities and regulators. While accepting that those in power have a crucial role to play in the development of society and industry, in this era, where institutions – especially those in the financial industry – are under scrutiny more than ever, we also acknowledge that regulators too should be kept under close watch to ensure the effectiveness of their functions.

Our cover story this week continues our inspection of regulators, in a continuation of the previous issue’s look at Shariah standard setting bodies. In one of our most thought-provoking pieces yet, we go one step further by outlining a blueprint for Shariah governance in Islamic finance, as we seek to propel the industry towards a more unified front to encourage the further global acceptance of Islamic finance.

The standardization of our industry has become especially important as more markets join the Shariah compliant finance sector. One such new entrant is Oman; and our issue this week also features an article by Abid Shakeel of Ernst & Young’s Islamic Finance Services Advisory, who writes on the sultanate’s preparations for introducing Islamic finance to its domestic market.
In another example of our industry’s inability to see eye-to-eye, we also feature a report by Gregory Man of Clifford Chance Hong Kong on the development of the Islamic derivatives market and its impact on Islamic structured finance.

Dr Moneer Hasan Saif of Yemen’s CAC Bank contributes our Takaful feature on the Islamic insurance industry in Yemen; while our IFN Reports cover the opening up of foreign investment in Saudi Arabia, regulatory developments in the Indonesian Sukuk market and the potential Islamic finance could hold for education funding.

Our IFN Correspondents write on Indonesia’s potential as a center for Islamic finance; Shariah compliant microfinance in Afghanistan; and new developments in Hong Kong’s Sukuk market.
Meet the Head talks to Robert Minnegaliev, the chairman of Russia’s AK BARS Bank, while our Case Study looks at the Saudi Electricity Company’s US$1.75 billion Sukuk.

Tuesday, April 10, 2012


Apr 9, 2012 -

MARC has downgraded its rating on Scomi Group Berhad’s (Scomi or group) RM500 million Medium Term Notes (MTN) programme to A from A+ and concurrently placed the rating on MARCWatch Negative. The rating action affects RM200 million of outstanding MTNs.

The downgrade follows the release of Scomi’s unaudited results for the financial year ended December 31, 2011 (FY2011). While Scomi had earlier posted an unaudited pre-tax profit of RM47.7 million for the first half of the financial year at the time of MARC’s October 2011 rating action, the full year results shows larger pre-tax losses of RM238.1 million compared to FY2010’s pre-tax loss of RM174.8 million. The full-year losses have eroded its capital base, which in turn saw its gearing as measured by the debt-to-equity ratio increase to 1.86 times (x). The downgrade reflects the group’s weak operating performance, negative discretionary cash flow and limited financial flexibility. Scomi is currently in breach of its covenanted debt-to-equity ratio of 1.25x, while its annual debt service cover ratio (ADSCR) for FY2011 was at the minimum required level of 1.50x.

Bondholders have granted Scomi waivers of covenant breaches until the maturity of the notes and consented to a waiver of scheduled sinking fund build-up payments which were to be used for the redemption of outstanding RM200 million notes due in September 2012. The group has proposed a corporate exercise involving an internal restructuring at its subsidiary company to upstream cash to the holding company and disposal of certain oil and gas assets, the proceeds of which will be used to partially pay down the bond. Scomi intends to pursue a refinancing for the remaining bond.

The negative MARCWatch placement incorporates the execution risk associated with the aforementioned corporate exercise given the constrained timeframe of less than six months to complete the transactions. MARC understands that the proceeds from the asset disposals and upstreaming of cash to the holding company are expected to be received by end-June 2012 and end-August 2012 respectively, while the refinancing exercise is expected to be completed by September 28, 2012. MARC will continue to monitor the developments, and will resolve the MARCWatch listing upon the completion of the corporate exercise. The rating will likely be lowered in the event of slippages in the indicated timetable for the corporate exercise.

Se Tho Mun Yi, +603-2082 2263/;
Sabesh Parameswaran, +603-2082 2260/;
Francis Xaviour Joe, +603-2082 2279/

China’s growing credit market to spill over into Islamic deals? (By IFN)


CHINA: The recent move by the Hong Kong government to proceed with draft amendments ultimately aimed at creating a fairer market between Sukuk and conventional bonds may prove astute as China sees further interest from Muslim markets as a source of funding.

Emirates NBD (ENBD), which issued a US$500 million Sukuk in January this year, has come to the market as the Middle East’s first issuer of Chinese yuan-denominated debt, dubbed dim sum bonds.
On the 21st March, the bank issued CNY750 million (US$119 million) three-year conventional notes, priced at 4.88%, followed by a CNY250 million (US39.54 million) tranche on the 24th March.
The issuance came on the heels of Malaysian sovereign wealth fund Khazanah Nasional’s US$357.8 million exchangeable Sukuk issuance on the 15th March. The Sukuk is convertible into shares of Khazanah’s Hong Kong-listed Parkson Retail Group.

Apart from Hong Kong’s draft amendments for Sukuk, China has also implemented a slew of measures aimed at gradually liberalizing its currency.
Its latest move involves the expansion of quotas for US dollar and Chinese yuan qualified foreign institutional investor schemes; and also includes a pilot program allowing offshore funds to raise Chinese yuan funding onshore for offshore investment. “If implemented, [this] would open up a new onshore-to-offshore cross-border investment channel,” said HSBC in a report on the 5th April.

As China loosens its grip on its currency and sees continued and growing foreign interest for funding and investments, it could just be a matter of time before the country entices more Islamic transactions; especially as entities seek more diversified funding in the wake of slowing credit from the west.


Apr 9, 2012 -

MARC has downgraded its rating on Scomi Group Berhad’s (Scomi or group) RM500 million Medium Term Notes (MTN) programme to A from A+ and concurrently placed the rating on MARCWatch Negative. The rating action affects RM200 million of outstanding MTNs.

The downgrade follows the release of Scomi’s unaudited results for the financial year ended December 31, 2011 (FY2011). While Scomi had earlier posted an unaudited pre-tax profit of RM47.7 million for the first half of the financial year at the time of MARC’s October 2011 rating action, the full year results shows larger pre-tax losses of RM238.1 million compared to FY2010’s pre-tax loss of RM174.8 million. The full-year losses have eroded its capital base, which in turn saw its gearing as measured by the debt-to-equity ratio increase to 1.86 times (x). The downgrade reflects the group’s weak operating performance, negative discretionary cash flow and limited financial flexibility. Scomi is currently in breach of its covenanted debt-to-equity ratio of 1.25x, while its annual debt service cover ratio (ADSCR) for FY2011 was at the minimum required level of 1.50x.

Bondholders have granted Scomi waivers of covenant breaches until the maturity of the notes and consented to a waiver of scheduled sinking fund build-up payments which were to be used for the redemption of outstanding RM200 million notes due in September 2012. The group has proposed a corporate exercise involving an internal restructuring at its subsidiary company to upstream cash to the holding company and disposal of certain oil and gas assets, the proceeds of which will be used to partially pay down the bond. Scomi intends to pursue a refinancing for the remaining bond.

The negative MARCWatch placement incorporates the execution risk associated with the aforementioned corporate exercise given the constrained timeframe of less than six months to complete the transactions. MARC understands that the proceeds from the asset disposals and upstreaming of cash to the holding company are expected to be received by end-June 2012 and end-August 2012 respectively, while the refinancing exercise is expected to be completed by September 28, 2012. MARC will continue to monitor the developments, and will resolve the MARCWatch listing upon the completion of the corporate exercise. The rating will likely be lowered in the event of slippages in the indicated timetable for the corporate exercise.

Se Tho Mun Yi, +603-2082 2263/;
Sabesh Parameswaran, +603-2082 2260/;
Francis Xaviour Joe, +603-2082 2279/

Monday, April 9, 2012


MARC affirms its rating on Gas Malaysia Berhad's (Gas Malaysia) RM500 million Al-Murabahah Medium Term Notes (MTN) Programme at AAAID with a stable outlook. Currently, there are no outstanding notes issued under the programme.

The affirmed rating reflects Gas Malaysia's satisfactory business risk profile owing to its strong market position as the sole natural gas distributor in Peninsular Malaysia, a major operator of the liquefied petroleum gas (LPG) system and its debt-free financial position. On February 24, 2012, it was announced that Petroliam Nasional Berhad has signed the new gas supply agreement with Gas Malaysia, which extends supply for another ten years with an option for a further five years effective from the expiry of the current contract on December 31, 2012. The new agreement also increases the supply of gas to 492 million standard cubic feet per day (mmscfd) from the current 382 mmscfd, which MARC believes will allow the company to expand its pipeline more rapidly. The agency notes that during the financial year ended December 31, 2011 (FY2011), Gas Malaysia constructed 18.3 km of pipeline, expanded its constructed pipeline network to 1,720.6 km (FY2010: by 100.8 km to 1,702.3 km).

Gas Malaysia, owned by MMC Corporation Berhad-Shapadu Corporation Sdn Bhd (55%), Tokyo Gas-Mitsui Consortium (25%), Petronas Gas Berhad (20%) and one special share held by Petronas, is involved in the selling, marketing and distribution of natural gas and reticulated liquefied petroleum gas for Peninsular Malaysia licensed by the Energy Commission. Gas Malaysia has announced plans for an initial public offering (IPO) on the main market of Bursa Malaysia of 26% of its existing issued share capital. Under the plan, existing shareholders will reduce their holdings in Gas Malaysia to 40.7%, 18.5% and 14.8% respectively. MARC views that the change in Gas Malaysia's ownership structure should, apart from providing access to the capital market, bring about improvements in corporate governance and transparency.

Revenue for FY 2011 increased to RM2.0 billion (FY2010: RM1.81 billion), while pre-tax profit declined to RM294.7 million (FY2010: RM388.4 million). The decline in profitability was due to tariff adjustment in June 2011 which narrowed the spread between the buying and selling price of natural gas to RM2.02 per million British thermal unit (MMBtu) from RM3.95 MMBtu previously, bringing operating cash flow lower to RM261.7 million (FY2010: RM369.4 million). The company has been debt-free since FY2009. MARC understands that no major capital expenditure is planned in the near term, and Gas Malaysia will distribute all its after-tax profits as dividends in FY2012 and proposes to adopt a 75% dividend pay-out policy thereafter.

The stability of this rating will depend on Gas Malaysia's maintenance of its operational and financial strength, a key driver of which will be developments pertaining to its gas supply arrangements.

Contacts: Goh Shu Yuan +603-2082 2268 /; Francis Xaviour Joe +603-2082 2279/


MARC has affirmed its AAAIS and AA+IS ratings on Tradewinds Plantation Capital Sdn Bhd's (Tradewinds Capital) asset-backed RM180 million Class A and RM30 million Class B Sukuk Ijarah (collectively the Sukuk) respectively, with a stable outlook. Wholly-owned by Tradewinds Plantation Berhad (Tradewinds), Tradewinds Capital is a special purpose vehicle established to act as issuer of the sukuk and the lessor in the sale and leaseback transaction of oil palm plantation assets; the sukuk are secured by a portfolio of 12 oil palm plantation estates and three palm-oil mills (the collateral portfolio). The affirmed ratings of the Class A and Class B Sukuk Ijarah reflect satisfactory performance of the securitised plantation assets, higher-than-projected net operating income (NOI) and favourable loan-to-value (LTV) ratios. The stable outlook on the ratings reflects MARC's opinion that the securitised estates will continue to perform within MARC's expectations.

At the same time, MARC has maintained its MARC-1ID(bg) / AAAID(bg) on Tradewinds Capital's RM100 million Bank Guaranteed Murabahah Commercial Paper/Medium Term Notes (BG Murabahah CP/MTN) Programme. The outlook on the ratings is stable. The rating is based on MARC's 'AAA' public information financial institution rating of OCBC Bank (Malaysia) Berhad (OCBCM). Notes issued under the BG Murabahah CP/MTN are fully and unconditionally guaranteed by OCBCM. OCBCM's rating reflects the agency's opinion of the strength of the parent/subsidiary relationship between the Oversea-Chinese Banking Corporation Limited (OCBCS) and OCBCM. In addition, based on the financial strength of OCBCS (rated AAA/stable by MARC), MARC believes that OCBCS possesses strong capacity to support OCBM's operations and financial obligations on a timely basis.

MARC has also affirmed its MARC-1ID rating on Tradewinds Capital's RM90 million Murabahah Commercial Papers with a stable outlook. Unlike the Sukuk Ijarah, the Murabahah CPs and the BG Murabahah CP/MTN are not serviced from the lease rentals and cash flow generated by the plantation assets that are funding Tradewinds Capital's obligations under the Sukuk but are essentially direct obligations of the parent, Tradewinds. The rating and outlook on the non-guaranteed Murabahah CPs therefore mirror the affirmed short-term rating and outlook of Tradewinds. The aforementioned rating reflects Tradewinds' sound liquidity profile, supported by internally generated cash flow and the availability of external liquidity sources in the form of credit facilities. Tradewinds' credit strengths, in particular its favourable plantation maturity profile and strong cash flow generation, are moderated by volatility in crude palm oil (CPO) prices and the rising cost of production inputs, particularly labour, fuel and fertiliser.

As of July 31, 2011, the securitised estates had a total planted area of approximately 17,707 ha, of which 87% comprised mature oil palms between the ages of four and 25 years. The collateral portfolio has continued to benefit from the healthy tree-maturity profiles of these underlying estates as well as some degree of income diversification given their differing individual geographic locations, including Johor, Terengganu and Sarawak. For the seven-month period ended July 2011 (7MFY2011), an increase in fresh fruit bunches (FFB) production output from the collateral portfolio and higher crude palm oil (CPO) prices contributed to a stronger net operating income (NOI) of RM105.7 million. This was substantially higher than the RM54.2 million recorded in 7MFY2010 and MARC's assumed sustainable NOI of RM42.0 million. Furthermore, the securitised palm-oil mills contributed an additional RM16.4 million (7MFY2010: 15.9 million) in NOI to total collateral portfolio earnings.

Based on the observed performance of the securitised assets over the reviewed period (July 31, 2010 to July 31, 2011), stressed debt service coverage ratios have remained consistent with the ratings for the Class A and Class B Sukuk. Principal redemptions have reduced the outstanding amount of Class A Sukuk to RM120.0 million, while the outstanding amount of Class B Sukuk remains at RM30.0 million. Based on the collateral portfolio's initial valuation of RM450.4 million, the LTV ratios for the Class A and Class B Sukuk are 26.6% and 33.3% respectively. Ongoing serial redemption of the sukuk will reduce actual loan-to-value ratios, thereby providing higher collateral backing for the remaining sukuk over time.

Tradewinds' financial performance in recent periods has benefited from an extended period of higher CPO prices. In the first half of its financial year ended December 31, 2011 (1HFY2011), Tradewinds' recorded revenues of RM565.72 million (1HFY2010: RM376.83 million), supported by higher CPO prices, which averaged RM3,380/MT during the period and higher production of palm products. Tradewinds' reported improved profitability; its operating profit margins have been restored to pre-2009 levels. Its stronger cash flow generation in recent periods is reflected in higher-than-FY2009 CFO interest coverage and DSCR levels of 8.58 times and 1.97 times respectively.

MARC regards Tradewinds' acquisition of Mardec Bhd as neutral to its credit profile. Although its consolidated operating profit margins and gearing have weakened following the acquisition, Tradewinds' robust operational cash flow generation and substantial headroom under its credit facilities provide meaningful offset to the downward pressure on the company's consolidated credit profile. A deterioration in Tradewinds' operational cash flows, material erosion of debt protection ratios or a large debt financed acquisition could exert negative pressure on Tradewinds' creditworthiness.

Contacts: Sandeep Bhattacharya, +603-2082 2247/; Ruben Khoo, +603-2082 2265/

Affordable luxury = impossible? Not with the @HiShopMY #DesignerBags sale with up to 50% off!

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Friday, April 6, 2012


Apr 6, 2012 -

The outlook on the ratings is stable. The affirmed ratings incorporate the group’s well-diversified business profile across several business segments and geographies and track record of operating profitability in its core business segments of plantation, industrial and motor. At the holding company level, Sime Darby’s strong liquidity position relative to its leverage and favourable financial flexibility arising from its position as a government-linked corporation support the ratings. Notwithstanding these positive factors, business cyclicality and the commodity price volatility as well as weaker global economic conditions could weigh on the holding company’s dividend income and erode the headroom at its current rating level.

Sime Darby’s plantation, industrial and motor divisions have registered strong earnings and profit growth in recent years due to strong commodity prices, robust mining activity in Australia, and stronger vehicle sales in several of its markets, respectively. Its plantation division remains the largest contributor to group revenue and operating profit with 31.5% and 58.6% contribution respectively for financial year ended June 30, 2011 (FY2011). The plantation division’s performance was driven by an increase of 25.7% in the average CPO selling price of RM 2,906/MT as compared to RM 2,311/MT achieved in the corresponding period last year. MARC expects the plantation segment’s strong earnings and cash flow generation to be sustained over the next 12 months.

MARC notes as a longstanding distributor of Caterpillar heavy machinery, mainly in Queensland and Northern Territories in Australia, the group’s industrial division has benefited from the recent mining boom in the country, translating into a 23.2% and 40.9% year-on-year (y-o-y) increase in revenue and operating profits in FY2011. The industrial division’s acquisition of a portion of Bucyrus’ former distribution business from Caterpillar for RM1.1 billion in 4Q2011 is expected to broaden the group’s competitive footprint in the Australian heavy machinery market segment. Meanwhile, the strong performance of the group’s motor division, which had registered robust luxury car sales in Hong Kong, China and Singapore, could see moderation in coming quarters on account of slower economic growth.

In FY2011, the group announced its exit from the oil and gas segment (O&G) with the sale of its fabrication yards in Teluk Ramunia and Pasir Gudang for RM689.5 million. The O&G segment registered significant project cost overruns that had led to losses in the preceding year. MARC believes that the divestment would enable Sime Darby to lower the business risk profile of its energy and utilities (E&U) division. Sime Darby will complete its remaining project, the construction of process platforms for India-based Oil and Natural Gas Corporation (ONGC), scheduled for completion in 4Q2012. Supported by improved performance of its utilities and port operations in China, the E&U division turned around with an operating profit of RM245.7 million in FY2011 (FY2010: -RM687.2 million).

Following a lackluster performance in FY2011, the group’s property division posted a 46.4% increase in its segment operating performance in the first six months of FY2012 (1HFY2012) compared with the prior year corresponding period. The improved performance was driven by higher sales and the completion of a higher percentage of property development works. Sime Darby’s purchase of a 30%-stake in high-end property developer Eastern and Oriental Berhad (E&O) is viewed as largely neutral from a business risk perspective.

For FY2011, holding company’s revenue, which consists mainly of dividend income from subsidiaries rose to about RM2.0 billion (FY2010: RM1.2 billion; FY2009: RM1.3 billion). MARC observes a high concentration of dividend income from Sime Darby’s plantation subsidiary despite the group’s business diversity. The division is expected to remain as the major dividend contributor for the near- to intermediate-term. In MARC’s opinion, Sime Darby’s liquidity is strong with cash and bank balances of RM347 million and availability of RM2.0 billion under the rated facilities against its short-term borrowings of RM1.2 billion (FY2010: RM1.8 billion). Sime Darby’s recent acquisitions of Bucyrus’ distribution assets and the equity stake in E&O have resulted in an increase in its consolidated debt-to-equity ratio, the credit impact of which is currently mitigated by the ample dividend income from its operating subsidiaries relative to its debt service requirements. However, a major acquisition at holding company level or at any of its operating subsidiaries could prompt a reassessment of its ratings.

The stable outlook reflects MARC’s expectations that Sime Darby’s credit metrics will remain in line with its current ratings.

Nisha Fernandez, +603-2082 2269/;
Rajan Paramesran, +603-2082 2233/

Silver Bird’s ratings downgraded to D after default

Published on 05 April 2012

RAM Ratings has downgraded the ratings of Silver Bird Group Berhad’s (“SBGB” or “the Group”) RM30 million Commercial Papers/Medium-Term Notes Programme (2005/2012) (“CP/MTN”), from C3/NP to D. Concurrently, the Rating Watch (with a negative outlook) on SBGB has been lifted.

The downgrade is premised on Facility Agent AmInvestment Bank Berhad’s announcement through the Fully Automated System for Issuing/Tendering (or FAST) that SBGB had failed to redeem RM15 million of its outstanding CP/MTN on the scheduled maturity date of 5 April 2012.

On 1 March 2012, RAM Ratings had downgraded SBGB’s ratings from A2/Negative/P2 to C3/RW (Negative)/NP, following defaults on some of its banking facilities and alleged irregularities in the Group’s accounts. At the same time, 3 key personnel (the group managing director, the executive director and a senior member of its management team) had been suspended.

Based on SBGB’s announcement on 2 April 2012, the Group had defaulted on RM45.36 million of banking facilities and is currently communicating with its lenders on various options to regularise the defaults. With the maturity of the CP/MTN, RAM Ratings no longer has any rating obligations on the CP/MTN.

Media contact
Low Pui San
(603) 7628 1051

Thursday, April 5, 2012

RAM Ratings upgrades Cahya Mata Sarawak’s rating to A1

Published on 05 April 2012

RAM Ratings has upgraded the rating of Cahya Mata Sarawak Berhad’s (“CMS” or “the Group”) RM399.6 million Serial Bonds and the Conditional Payment Obligations (“CPOs”) of the Facilitator Bank (collectively, “the Repackaged CMS Income Securities”), from A2 to A1; the rating has a stable outlook. Under the transaction structure, CMS assumes the risk of non-payment of the CPOs by the Facilitator Bank. The rating of the Repackaged CMS Income Securities is therefore premised on the Group’s credit strength. CMS is involved in cement manufacturing, construction, quarry operations and property development.

The rating upgrade is premised on the sustained improvement in CMS’s financial results over the past 5 years. Backed by its strong market position in Sarawak’s cement-manufacturing sector, revenue increased from RM846.5 million in FYE 31 December 2007 (“FY Dec 2007”) to RM1.0 billion in FY Dec 2011 (unaudited), translating into respective operating profits before depreciation, interest and tax of RM44.5 million and RM195.1 million. The Group’s performance will be further lifted by the acquisition of profitable entities, i.e. CMS Roads Sdn Bhd and CMS Pavement Tech Sdn Bhd in May 2011, along with the benefits from the upgrading of CMS’s integrated cement-manufacturing business.

The better results were also accompanied by stronger debt-protection metrics and a deleveraged balance sheet. Notably, CMS’s gearing ratio eased from 0.38 times as at end-FY Dec 2007 to 0.13 times as at end-FY Dec 2011; its funds from operations (“FFO”) debt coverage surged from 0.03 to 0.91 times over the same period. CMS also boasts a strong liquidity position – featuring RM222.9 million of cash and bank balances and RM516.1 million of investment securities against RM215.8 million of debts as at end-December 2011.

Going forward, the Group’s healthy financial profile is envisaged to remain largely intact. Even after factoring in CMS’s equity injection for its new business venture, i.e. a 20%-stake in a joint venture with OM Holdings Ltd for the production of ferro-alloys (ferro silicon and silico manganese), the Group’s gearing ratio is still envisaged to stay below 0.2 times while its FFO debt coverage should approximate 0.6 times over the next 2 years – considered above-average relative to its similarly rated peers. The rating upgrade also takes into consideration the better showing of the Group’s key divisions, including cement manufacturing and construction, which have outperformed our sensitised-case projections.

CMS recently announced the abortion of its plan to jointly develop a USD2 billion aluminium smelter plant with Rio Tinto Aluminium Ltd. While this will preserve the Group’s coffers, we expect CMS to embark on new projects under the Sarawak Corridor of Renewable Energy and also expand its current operations, albeit at a measured pace. “We believe that CMS’s current robust balance sheet and strong liquidity profile provide sufficient headroom for such initiatives,” notes Shahina Azura Halip, RAM Ratings’ Head of Real Estate and Construction Ratings.

The rating nonetheless, is moderated by the Group’s exposure to geographical-concentration risk as most of its businesses are located in Sarawak. CMS is also susceptible to the cyclical natures of the construction and property sectors.

Media contact
Yong Keck Phin
(603) 7628 1183

Wednesday, April 4, 2012

Malaysia’s Sukuk market faces stiff competition (By IFN)


GLOBAL: Malaysia is poised to retain the lion’s share of the global Sukuk market this year, but could the country see stiffer competition from its neighboring Asian countries?
According to Herwin Bustaman, the head of HSBC Amanah Indonesia, Indonesia is most likely to see record Sukuk issuance this year with another US$1.5 billion sovereign Sukuk issuance, on top of US$1.5 billion already issued in March. The second sovereign sale is expected in the second half of this year.

In addition, he said that: “For the first time, we think Indonesia will see one or two corporates issue the country’s first US dollar-denominated Sukuk.” He noted that this is now possible following the country’s new tax and Sukuk laws, which allow for the issuance of US dollar-denominated Sukuk by corporates; and enables local companies to reach out to investors in the Middle East.

Meanwhile, although Malaysia is forecast to issue 60% of the US$44 billion-worth of Sukuk HSBC projects to be offered globally this year, other Asian countries are also proactively marketing themselves to boost their standing in the lucrative Sukuk market. One notable and new player to the fore is Hong Kong.

"Hong Kong has issued a consultative paper on Sukuk laws seeking response from the market whether provisions drafted in the country were adequate to provide the right platform," said Rafe Haneef, CEO of HSBC Amanah Malaysia. He also said that while the Malaysian market caters to investors seeking Shariah compliant solutions, jurisdictions such as Hong Kong and Singapore cater to investors seeking alternative sources of financing.

Furthermore, Malaysia must increase the issuance of US dollar-denominated Sukuk to achieve its aspiration of becoming a financial hub.
"The advantage of US dollar Sukuk issuances in Malaysia will be that the credit of companies will be regularly monitored by investors abroad and this will enable support from international investors,” said Rafe.

Playing by the rules (By IFN)


In a world bound by rules, regulators and the authorities play a key role in ensuring that we toe the line. While the importance of those authoritative bodies cannot be denied, their presence also puts forth the question: Who regulates the regulators?

Quite often, it is the theoretical fourth estate which helps keep the higher-ups in check; and this week, we at Islamic Finance news play our part with a closer look at our industry’s standard setting bodies; as covered in our lead story.

However, there is no escaping regulations and regulators, which are crucial to growth and development; and our issue this week also gives a nod to the support that the law and the authorities provide to our fledgling industry. Dr Wan Nursofiza Wan Azmi of the Asian Institute of Finance provides an excerpt of a chapter in the Global Islamic Finance Report 2012; covering the Malaysian government’s support in developing Islamic microfinance in the country.

Tanzania’s budding Islamic banking market has also benefited from a sound conventional regulatory framework; as Khalfan Abdallah of Amana Bank Tanzania writes on the development of the industry in the east African country; while we cross to the UK with a feature on Islamic financial products on the London Stock Exchange (LSE) by Gillian Walmsley of the LSE.

We return to Malaysia with an article on the performance of the country’s Sukuk market by Meor Amri Meor Ayob of Bond Pricing Agency Malaysia; and our Takaful feature on the country’s various models of Shariah compliant insurance by Mohammad Mahbubi Ali of ISRA.

Insider takes a look at developments at Kuwait Finance House; IFN Reports cover the development of Islamic finance in Hong Kong and provide a snapshot of first quarter 2012 financial results of banks and corporates in Malaysia and the Middle East; and IFN Correspondents contribute reports on the establishment of charitable foundations in Saudi, new Takaful rules in Pakistan and the structuring of Sukuk Wakalah.

Meet the Head talks to Dr Shahinaz Hanem Rashad Abdellatif of Egypt’s Metropolitan Consultancy; and our Case Study highlights Tanjung Bin Energy Issuer’s US$1.07 billion Sukuk.
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