RAM Ratings assigns AA1 rating to YTL Corp’s proposed debt issue, reaffirms rating of existing facility

Published on 28 March 2013

RAM Ratings has assigned a long-term rating of AA1 to YTL Corporation Berhad’s (“YTL Corp” or “the Group”) proposed Medium-Term Notes Programme of up to RM2 billion (2013/2038) (“Proposed MTN Programme”). At the same time, we have reaffirmed the AA1 rating of the Group’s RM500 million Medium-Term Notes Programme (2004/2019) (“the MTN Programme”); both long-term ratings have a stable outlook. Our rating assessment is based on the assumption that YTL Corp will only draw down RM1 billion under this facility, bringing its expected company debt level to RM4.04 billion as at end-June 2013 (including corporate guarantees extended to its subsidiaries). We note that utilisation plans have yet to be determined for the amount drawn down at this juncture.

YTL Corp is an investment-holding and management company with interests in power generation and transmission, water and sewerage services, cement manufacture and trading, property investment and development, construction, hotels, telecommunications and information technology.

The ratings continue to reflect YTL Corp’s strong business profile as a diversified conglomerate with sturdy subsidiaries in various industries. The Group’s key subsidiaries are viewed as having solid, entrenched positions in their respective sectors. Furthermore, the steady and predictable cashflow from YTL Corp’s utilities division mitigates the Group’s exposure to cyclical industries. The superior operating track records of its regulated assets are expected to continue to anchor the Group’s financial performance.

Meanwhile, YTL Corp’s additional debt of RM1 billion as well as YTL Power International Berhad’s (“YTLPI”) – YTL Corp’s 51.4%-owned utilities and infrastructure arm – recent drawdown of RM1 billion from its MTN Programme will further strain the Group’s already-stretched balance sheet. The Group’s total operating lease-adjusted debt remained hefty at RM29.61 billion as at end-December 2012, although we understand that most of the Group’s debts are concession-related, ring-fenced and non-recourse to YTL Corp. From a group perspective, YTL Corp’s balance sheet continues to be heavily geared, even after its unencumbered cash balances of RM8.16 billion are taken into account. Based on our assessment on the operating cashflow of YTLPI’s subsidiaries, in order to support YTL Corp’s heftier debt load, the key dividend growth driver will shift from YTLPI to YTL Cement Berhad (“YTL Cement”) – YTL Corp’s 97.89%-owned cement-manufacturing and trading arm. The higher dividend is expected to be comfortably supported by YTL Cement’s position as Malaysia’s second-largest cement player, coupled with its strong financial profile. YTL Cement has enjoyed a net-cash position for the last 3 years, with robust profits and a sturdy cashflow.

Going forward, YTL Corp’s funds from operations debt coverage ratio is projected to be maintained at around 0.2 times over the next 5 years. We highlight that it is imperative for YTL Corp’s subsidiaries to adhere to the level of dividends represented to us. Any deviation from the dividend income and level of indebtedness represented to RAM will be reassessed for credit implications.

We will continue to monitor the impact of the Group’s future acquisitions on its overall business and financial profiles. Debt-funded acquisitions (whether wholly or in part) or those by its subsidiaries that necessitate corporate guarantees from YTL Corp may exert additional strain on its financial position and rating. In this context, we envisage that YTL Corp will consider the impact of any such acquisition on its balance sheet and ensure that the requisite debt will be adequately supported by the returns generated.

Media contact

Lee Chai Len

(603) 7628 1192

chailen@ram.com.my