RAM Ratings reaffirms AAA rating of Khazanah’s RM7 billion Sukuk Musyarakah issued through Rantau Abang Capital

Published on 26 August 2013

RAM Ratings has reaffirmed the AAA rating of Rantau Abang Capital Berhad’s (“RACB”) RM7 billion Islamic Medium-Term Notes Programme (“Sukuk Musyarakah”); the long-term rating carries a stable outlook. RACB, a wholly-owned subsidiary of Khazanah Nasional Berhad (“Khazanah” or “the Company), was incorporated to facilitate solely for the issuance of the Sukuk Musyarakah.

Under the transaction, a Musyarakah partnership had been established between Khazanah and RACB; the capital returns and periodic profit payments on the Sukuk Musyarakah stem from an investment portfolio consisting of Shariah-approved shares and assets owned by Khazanah. The rating of the Sukuk Musyarakah ultimately reflect the credit strength of Khazanah, in its capacity as the Purchase Undertaking Obligor; the Company will purchase the specific portfolio units from RACB at a pre-agreed price upon maturity or a dissolution event.

RAM considers Khazanah as an extension of the GOM; the likelihood of extraordinary government support for the Company if at all required is deemed indisputable. This is based on Khazanah’s strategic importance to the GOM given the Company’s interests in sectors that are strategically significant to the nation’s economy and strong links with its sole shareholder, the GOM. Khazanah has been mandated to not only spearhead the transformation of government-linked companies (“GLCs”), but also to drive and spur one of the nation’s key developments, i.e. Iskandar Malaysia. Our assessment also takes into account the Company’s highly diversified investment portfolio that comprises listed GLCs operating in stable and defensive industries. This yields recurring dividend income for the Company, along with superior financial flexibility in tapping the debt markets for refinancing or additional funding.

Khazanah’s top line slipped 43.0% to RM4.7 billion in FY Dec 2012, following the absence of one-off RM3.8 billion dividend following the privatisation of PLUS Expressway Berhad in 2011. Correspondingly, the Company’s return on capital employed normalised from 11.8% to 5.1% at the same time. Moving forward, we envisage the Company’s dividend income to remain dictated by the performance of its investee companies, the progress of its divestment exercises and the overall market environment.

Khazanah’s balance sheet remained relatively unchanged as at end-fiscal 2012; its debt level remained reasonably high at RM32.9 billion (end-fiscal 2011: RM32.0 billion). Excluding amounts owed to related companies, its gearing ratio stood at 1.1 times as at the same date. Concurrently, the Company’s operating profit before depreciation, interest and tax debt coverage also normalised from 0.24 times to 0.13 times over the same period. While RAM notes the Company’s intention to maintain its gearing ratio at the current level moving forward, we do not discount the possibility of Khazanah incurring fresh debt for future acquisitions. The challenging global environment may introduce uncertainties to its funding options, including the valuation and timing of its divestments. That said, the Company has very minimal refinancing risk given its superior financial flexibility.

Media contact

Umar Marzuki

(603) 7628 1055

umar@ram.com.my