RAM Ratings downgrades Binariang GSM's sukuk ratings, effects negative Rating Watch

Published on 26 July 2013

RAM Ratings has downgraded the ratings of Binariang GSM Sdn Bhd’s (“BGSM” or “the Group”) following debt issues:

Instrument	Tenure	Previous rating	Revised rating
RM2 billion Islamic Commercial Papers (“ICP”) Programme	2007-2014	-/-/P1/-	-/-/P2/RW_Negative
RM19 billion Islamic Medium-Term Notes (“IMTN”) Programme	2007-2027	AA3/Negative/-/-	A2/-/-/RW_Negative
RM Equivalent of USD900 million Cumulative Non-Convertible Islamic Junior Sukuk (“Junior Sukuk”)	2007-2057	A2/Negative/-/-	BB1/-/-/RW_Negative
Note: The ICP and IMTN are collectively known as “the Senior Sukuk”.

The continuing weak performance of Aircel Limited (“Aircel”) amid the extremely competitive business environment and unrelenting regulatory uncertainties in India continues to weigh on the credit profile of BGSM. Despite Maxis Berhad (“Maxis”) still being the largest mobile player in Malaysia, its strong profitability has not been able to offset the continuing losses at Aircel, as evident by the doubling of BGSM’s net loss to RM7.82 billion and the Group’s weaker credit metrics in fiscal 2012.
The ratings have also been placed on Rating Watch (with a negative outlook). Should this situation persist unabated and the concerns on Aircel are not addressed satisfactorily within the next few months, the ratings will be further downgraded.
The wider rating differential between the Senior and Junior Sukuk reflects the latter’s position as the loss-absorption piece. Further downgrades of the Senior Sukuk’s rating will trigger a mandatory deferral of the Junior Sukuk’s repayment, as dictated by the terms of the Junior Sukuk.
BGSM is the immediate-holding company of Maxis Communications Berhad (“MCB”). In turn, MCB controls Malaysia’s largest cellular operator, Maxis, and India’s seventh-largest mobile operator, Aircel.
RAM’s Rating Watch highlights a possible change in an issuer's sukuk rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated sukuk under special surveillance by RAM. In a broader sense, it covers any event that may result in changes in the risk factors relating to the repayment of principal and interest.
Issues will appear on RAM’s Rating Watch when some of the above events are expected to or have occurred. Appearance on RAM’s Rating Watch, however, does not inevitably mean that the rating will be changed. It only means that a rating is under evaluation by RAM and a final affirmation is expected to be announced. A "positive" outlook indicates that a rating may be raised while a "negative" outlook indicates that a rating may be lowered. A “developing” outlook refers to those unusual situations in which future events are so unclear that the rating may potentially be raised or lowered.
Media contact
Lee Chai Len
(603) 7628 1192
chailen@ram.com.my