RAM Ratings reaffirms AA3/P1 ratings of Gamuda’s Islamic securities

Published on 17 April 2013

RAM Ratings has reaffirmed the AA3/P1 ratings of Gamuda Berhad’s (“Gamuda” or “the Group”) existing RM800 million Islamic Medium-Term Notes Programme (2008/2028) and RM100 million Islamic Commercial Papers Programme (2008/2015), as well as its RM800 million Islamic Medium-Term Notes Programme (2013/2038) and RM100 million Islamic Commercial Papers Programme (2013/2020) (referred to as “the Islamic Securities”). The long-term ratings have a stable outlook. Each of the combined facilities will be capped at RM800 million at all times.

Gamuda and its subsidiaries are principally involved in the construction and property development sectors, as well as in the operations and maintenance of toll roads and water treatment plants. “Gamuda’s solid reputation and proven project-execution capability will continue to make it a strong contender for complex large-scale projects, both domestically and internationally. The Group also derives earnings diversity from its property developments and concession assets,” observes Thong Mun Wai, RAM’s Head of Real Estate and Construction Ratings. Gamuda’s outstanding construction order book of RM4.94 billion and unbilled property sales of RM1.24 billion as at end-October 2012 will provide some revenue visibility over the next 3 years.

Meanwhile, Gamuda’s balance sheet has stayed healthy. Despite a higher level of debt as at end-July 2012, its net gearing came in at 0.20 times (including liquid investments: 0.13 times). The Group’s funds from operations (“FFO”) debt cover remained moderate at 0.20 times for FY Jul 2012. Looking ahead, we do not envisage Gamuda’s debts increasing substantially in the next 2 years amid slower launches, particularly in Vietnam. Nonetheless, the Group’s working capital requirements are expected to reduce its cash balance. We expect Gamuda’s net gearing in the next 2 years to remain healthy at around 0.38 times (including liquid investments: about 0.30 times) while its FFO debt cover is estimated to stay moderate at current levels.

Gamuda’s ratings are moderated by significant concentration and execution risks relating to its projects. The Group’s outstanding order book is presently driven by 2 large local projects. The concentration risk arising from its heavy reliance on 1 – 2 projects in a single country is exacerbated by the execution risk from the complexity of the work involved. Gamuda’s role as project delivery partner for the Klang Valley Mass Rapid Transit project’s Sungai Buloh-Kajang line is aimed at ensuring that the project is completed within a strict timeline and budget. Among other challenges, the Group is required to manage numerous contractors involved in the project, the scale of which is unprecedented.

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Ben Inn

(603) 7628 1024

ben@ram.com.my