RAM reaffirms AA1/P1 ratings of YTL Power International’s debt facilities

Published on 21 January 2013

RAM Rating Services has reaffirmed the AA1 long-term rating of YTL Power International Berhad’s (“YTLPI” or “the Company”) Medium-Term Notes Programme of up to RM5 billion (2011/2036), as well as the AA1/P1 ratings of its RM2 billion Commercial Papers/Medium-Term Notes Programme (2007/2014); both the long-term ratings have a stable outlook. YTLPI is an investment-holding company with subsidiaries involved in power generation, water and sewerage services, electricity transmission and telecommunications. YTLPI and its subsidiaries will be collectively referred to as “the Group”.

The ratings reflect YTLPI’s robust business profile that is underpinned by its base of regulated assets, particularly its investments in power and water-sewerage services via wholly owned YTL Power Generation Sdn Bhd (“YTLPG”) in Malaysia and YTL PowerSeraya Pte Limited (“YTL PowerSeraya”) in Singapore. Other than its Malaysian power-generation business, YTLPG also indirectly owns 100% of Wessex Water Services Limited (“WWSL”) in the United Kingdom (“UK”), following a group restructuring in June 2012. Notably, YTLPG and YTL PowerSeraya have been maintaining their commendable operations while WWSL remains among the UK’s best-performing water-and-sewerage companies. YTLPI’s investments in the relatively stable and regulated utilities sector provide a sturdy stream of residual cashflow in the form of dividends, which support its company-level debts.

Meanwhile, the Group’s capital structure remained constrained by its hefty debt burden of RM22.99 billion as at end-June 2012, with a corresponding adjusted gearing ratio of 2.38 times. Taking into account its RM9.63 billion of cash reserves, of which RM8.09 billion is free from encumbrances and will be readily available for the Company if required, its adjusted net gearing ratio works out to 1.40 times. Nonetheless, more than 80% of the Group’s debts reside with subsidiaries that are viewed to be self-sufficient; we note that these debts are concession-related, ring-fenced and non-recourse to YTLPI.

On a separate note, YTLPI’s telecommunications arm, YTL Communications Sdn Bhd (“YTL Comms”), is facing intense rivalry from other local broadband players. Given that YTL Comms is still in its nascent stage, there will be a lengthy gestation period before it can achieve economies of scale. Its losses, if taken as a proportion of the Group’s pre-tax profit, came up to 22% in fiscal 2012. This was mainly attributable to the initial capital expenditure on its network rollout and expansion. Notably, YTLPI’s appetite for acquisitions may expose it to additional operations, political, regulatory and currency risks, more so if such investments are in less developed markets, and for less matured assets.

Media contact

Cheong Kah Weng

(603) 7628 1113

kahweng@ram.com.my