RAM Ratings reaffirms AAA rating of Khazanah’s RM10 billion Multi-Currency Islamic securities issued through Danga Capital

Published on 26 August 2013

RAM Ratings has reaffirmed the AAA rating of Danga Capital Berhad’s (“Danga”) RM10 billion Multi-Currency Islamic Securities Programme (“ISP” or “the Islamic Securities”); the long-term rating has a stable outlook. Danga, a trust-owned special purpose vehicle, had been incorporated for the sole purpose of facilitating the issuance of the Islamic Securities.

The rating reflects the credit strength of Khazanah Nasional Berhad (“Khazanah” or “the Company”), in its role as the Purchase Undertaking Obligor in this transaction. Proceeds from the ISP were utilised to purchase pools of identified Shariah-approved shares and/or assets from Khazanah. The Company will top up any shortfall in the income generated by the Musyarakah venture. It has also undertaken to purchase specific portfolio units from Danga at a pre-agreed price upon maturity or a dissolution event.

RAM considers Khazanah as an extension of the Government of Malaysia (“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 this sole shareholder. Khazanah has been mandated to spearhead the transformation of government-linked companies (“GLCs”), as well as to drive 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 capital markets for refinancing or additional funding.

Khazanah’s top line tumbled 43.0% y-o-y to RM4.7 billion in FY Dec 2012, on the absence of a 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%. Moving forward, we envisage Khazanah’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. While RAM notes Khazanah’s intention of maintaining its gearing ratio at the current level, we do not discount the possibility of fresh debt for future acquisitions. Moreover, the challenging global environment may introduce uncertainties to its funding options, including the valuation and timing of its divestments. That said, Khazanah has minimal refinancing risk given its superior financial flexibility.

Media contact

Umar Marzuki

(603) 7628 1055

umar@ram.com.my