RAM Ratings assigns long-term ratings to Malaysia Airports’ RM2.50 billion Senior Sukuk Programme (2013/2033) and RM2.50 billion Perpetual Subordinated Sukuk Programme

Published on 16 August 2013

RAM Ratings has assigned respective long-term ratings of AAA and AA2 to Malaysia Airports Holdings Berhad’s (“MAHB” or “the Group”) RM2.50 billion Senior Sukuk Programme (2013/2033) and RM2.50 billion Perpetual Subordinated Sukuk Programme; both facilities have a combined limit of RM2.50 billion in nominal value. The long-term ratings carry a stable outlook.

Concurrently, we have reaffirmed the AAA/Stable rating of Malaysia Airports Capital Berhad’s RM3.10 billion Islamic Medium-Term Notes Programme (2010/2025) (“IMTN Programme”) and the P1 rating of its RM1.00 billion Islamic Commercial Papers Programme (2010/2017) (“ICP Programme”). Both the IMTN and ICP programmes have a combined limit of RM3.10 billion in nominal value.

The senior sukuk’s credit worthiness reflects MAHB’s credit profile as it ranks pari passu with all other senior unsecured debt of the Group. The perpetual sukuk, meanwhile, has been rated 2 notches below the corporate credit rating of MAHB to reflect the risks of deferrable profit distributions and the deeply subordinated right of the sukuk holders to claims in the event of insolvency. Furthermore, holders of the perpetual sukuk should be aware that the notching gap between MAHB’s corporate credit rating and the perpetual sukuk may increase if there is a marked deterioration in the Group’s credit profile, such as to precipitate a deferral of profit distributions for the perpetual sukuk. For further details, please refer to the rating methodology entitled “Equity Credit for Corporate Hybrid Securities” published in February 2007.

MAHB’s AAA-rating reflects its solid business profile which is anchored by the Group’s position as the sole operator of all 39 government-owned airports in Malaysia. Passenger traffic at airports under the Group had steadily trended upwards between 2007 and 2012, with an average growth of 8.0% per annum. Elsewhere, MAHB enjoys a strong collaborative relationship with the Government of Malaysia (“GoM”), given the Group’s critical role as the operator of strategic assets of the country and the fact that the GoM’s investment-holding arm – Khazanah Nasional Berhad – holds a substantial stake in the Group.

MAHB’s 1H FY Dec 2013 results were within expectation. Its adjusted gearing ratio and adjusted annualised funds from operations (“FFO”) debt coverage stood at 0.71 times and 0.21 times, respectively (end-FY Dec 2012: 0.77 times and 0.21 times). “Looking ahead, the Group is expected to incur about RM1 billion of capex to complete the construction of klia2, which will be funded by this sukuk programme. Nonetheless, management has indicated that it will ensure that MAHB’s gearing ratio remains below 1 time. Accordingly, we expect the Group’s adjusted FFO debt coverage to stay adequate at above 0.2 times in FY Dec 2013,” observes Kevin Lim, RAM Ratings’ Head of Consumer & Industrial Ratings. “Although these metrics are somewhat weaker than those of similarly-rated peers, we derive comfort from the Group’s fairly stable and strong cashflow. In addition, its FFO debt coverage is anticipated to improve to around 0.3 times as contributions from klia2 ramp up by FY Dec 2015,” adds Lim.

The ratings are moderated by several challenges faced by MAHB. The Group is exposed to construction risk due to the ongoing development of klia2; any additional cost or deviation from the scheduled completion date could affect its financial profile. MAHB had announced in early May 2013 that the main contractor would be unable to complete klia2’s main terminal building as per the earlier expected completion date of 28 June 2013. The Group had subsequently set 2 May 2014 for the commencement of klia2’s operations. Barring further unforeseen hiccups, the Group should be able to meet the new deadline, given that klia2 is 91.3%-complete as of 4 July 2013. That said, the delay underscores the construction risks to which MAHB is exposed.

MAHB’s operations are also susceptible to event risk, given that air traffic is vulnerable to external events. The Group further faces regulatory and political risks as it operates in a regulated industry, with most of its key decisions subject to the approval of the GoM. Likewise, the Group’s ventures in India, Turkey and the Maldives are exposed to similar risks. This was evident in the Maldivian government’s recent termination of an agreement to have MAHB manage the Ibrahim Nasir International Airport in the country. For more information on this, please refer to RAM’s press release dated 19 December 2012.

Media contact

Woon Tien Ern

(603) 7628 1040

tienern@ram.com.my