Thursday, October 31, 2013

RAK Capital’s US$500 million Sukuk offering in Malaysia demonstrates confidence of UAE issuers in Malaysia’s Islamic capital market - IFN

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MALAYSIA: In an announcement to Bank Negara Malaysia, the government of Ras Al Khaimah will be issuing its five-year US$500 million Sukuk trust certificates in Malaysia on the 21st October 2013. The papers will be issued by RAK Capital on behalf of the Investment and Development Office of the emirate. The Ijarah-structured Sukuk carries a profit rate of 3.29% per year and a tight spread of 175bps over midswaps. They are due for maturity on the 21st October 2018.
Commenting on the transaction, an industry expert conveyed to Islamic Finance news that the UAE sees Malaysia as a conducive marketplace with established key laws and regulations that are favorable to Sukuk transactions. The large Malaysian Islamic capital market possesses deep liquidity which enables issuers to obtain good prices for their certificates. He further elucidated that a steady stream of deals from international issuers are to be expected in the future.
Having conducted roadshows in Singapore, the UAE, London and Kuala Lumpur, the issuance reportedly received high investor demand due to its rarity value. The papers were assigned an expected senior unsecured rating of ‘A(EXP)’ by Fitch and is said to be part of the emirate’s US$2 billion Sukuk program. According to the announcement made, the certificates have not been and will not be registered under the United States Securities Act of 1933. Al Hilal Bank, Citigroup, Mashreqbank, National Bank of Abu Dhabi and Standard Chartered are the mandated arrangers for the deal.



MARC AFFIRMS ITS AAIS RATING ON ALLOY PROPERTIES SDN BHD’S SUKUK MUSYARAKAH PROGRAMME



Oct 22, 2013 -

MARC has affirmed the rating of Alloy Properties Sdn Bhd’s (APSB) outstanding RM216 million Sukuk Musyarakah Medium Term Notes Programme at AAIS. The rating outlook is stable. The outstanding notes are serviced by APSB’s rental income from its two office buildings and assigned cash flows from sister companies Alloy Toll Management Sdn Bhd (ATM) and Alloy Maintenance Engineering Sdn Bhd (AME). ATM and AME are involved in the provision of toll collection and highway maintenance services respectively for the Kuala Lumpur-Karak Highway (KL-Karak) and Phase 1 of the East Coast Expressway (ECE1).

The affirmed rating is supported by structural elements of the transaction: 1) the predictability and stability of assigned cash flows for debt repayment provided by ATM and AME as well as APSB’s own rental income stream; 2) a debt size and amortisation profile that have been shaped to produce base case coverage metrics with a comfortable headroom against the debt service coverage ratio (DSCR) covenant of 1.75 times (x); and 3) additional credit support from related entity ANIH Berhad (ANIH) to offset the cash flow impact of reduced highway toll rates on ATM’s revenue. The rating incorporates APSB’s credit linkage to ANIH as the concession holder of the KL-Karak and ECE1 and offtaker to ATM and AME.

ANIH is expected to provide more than 70% of APSB’s cash flows over the tenure of the sukuk through ATM and AME. This includes payments made to counter the cash flow impact of the deferment of toll hikes on the KL-Karak and ECE1. The strong credit risk correlation between APSB and ANIH is reflected in the alignment of APSB’s sukuk rating and rating outlook with ANIH’s senior debt rating and rating outlook of AAIS/Stable. ANIH’s sound credit fundamentals are underpinned by the strong competitive positions and stable traffic profiles of its portfolio of matured toll road concessions.

Potential downside risks to APSB’s rating include prolonged vacancy or higher vacancy rate or pressure on rental rates for the Shell Building and/or unexpected cash outflow to fund refurbishment of the building as a consequence of its upcoming lease expiry in March 2014. APSB’s rating is also sensitive to a change in ANIH’s credit rating and the timeliness in the receipt of assigned revenues from ATM and AME.

Since MARC’s last rating review, the head lease for APSB’s Shell Building has been extended further until March 2014. Following the upward revisions to the rental rates of both office buildings, APSB’s rental revenue for the financial year ended March 31, 2013 (FY2013) improved to RM14.1 million, an increase of 4.2% from the revenue of RM16.9 million in the previous 15-month financial year ended March 31, 2012 (15M2012) on an annualised basis. The higher-than-projected traffic volumes registered by the KL-Karak and ECE1 was reflected in ATM’s strong financial performance for FY2013, with pre-tax profit of RM27.1 million on revenue of RM38.8 million (15M2012: pre-tax profit of RM27.6 million; revenue of RM41.6 million). Meanwhile, AME’s pre-tax profit of RM10.8 million on revenue of RM69.9 million compared to the pre-tax profit of RM14.2 million on revenue of RM114.3 million in 15M2012 was modest in response to the lower major maintenance work orders in FY2013.

In FY2013, total cash advances from ATM and AME to APSB amounted to RM33.2 million (15M2012: RM9.8 million), supplementing APSB’s cash flow from operations (CFO) of RM12.6 million (15M2012: RM14.5 million). CFO interest coverage of APSB, ATM and AME on a consolidated basis in FY2013 also remained strong at 3.08x (15M2012: 2.54x). With consolidated cash and cash equivalents of RM83.2 million as at March 31, 2013 (15M2012: RM68.6 million), APSB’s forward-looking DSCR for FY2013 of 2.94x (15M2012: 2.55x) provides ample headroom against the covenanted DSCR. APSB’s strong liquidity buffer provides a reasonable timing cushion for it to secure new tenants for the Shell Building with its upcoming lease expiry in March 2014.

The stable outlook anticipates continued solid coverage of outstanding debt with no significant negative variations in actual performance compared to projected cash flows and timeliness in receipt of revenues assigned for note repayment.

Contacts:
Koh Shu Yunn, +603-2082 2243/ shuyunn@marc.com.my;
David Lee, +603-2082 2255/ david@marc.com.my.


Senegal joins the ranks of west African countries issuing Sukuk - IFN

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SENEGAL: West Africa seems to be picking up the pace in terms of Sukuk, as Senegal becomes the latest country after Nigeria to announce plans to diversify its financing resources through a Shariah compliant facility. The US$200 million local currency-denominated Sukuk was initially announced in August this year, but plans ground to a halt as the west African country was said to be grappling with technical issues arising from a lack of expertise. The original plans were also shelved due to timing concerns, which were said to be less than ideal due to the country’s pre-election campaign at the time.
In light of this, the Islamic Corporation for the Development of the Private Sector (ICD) has given a boost to the sovereign issuance by the Senegalese government issuance by offering its technical assistance to the issuance which is due next year. Amadou Ba, Senegal’s minister of economy and finance, has reaffirmed the government’s interest in issuing Sukuk, which he expects will lead to more Shariah compliant issuances; especially for infrastructure and energy projects in the country.
The project is said to be the first of its kind for the West African Economic and Monetary Union (WAEMU), and aims to promote Islamic finance as an alternative instrument to finance the economies of the member states of the union.
Commenting on the issuance Khalid Al Aboodi, CEO of the ICD, said that the Senegalese Sukuk would be the first of a series of regional programs that would be offered to West African states. He also added that the Sukuk, which will be arranged by Citigroup, has been accepted in-principle by the Central Bank of West African States to be used in its repurchase operations, and is expected to spark interest amongst banks involved in the local money market as an attractive investment option.



RAM Ratings has reaffirmed the AAA(bg)/Stable/P1 ratings of AEON Credit Service (M) Berhad’s (or the Company) RM400 million CP/MTN Programme (2007/2014).

Published on 29 October 2013
RAM Ratings has reaffirmed the AAA(bg)/Stable/P1 ratings of AEON Credit Service (M) Berhad’s (or the Company) RM400 million CP/MTN Programme (2007/2014). The ratings reflect the strength of the unconditional and irrevocable guarantees extended by a consortium of 3 banks – Bank of Tokyo Mitsubishi UFJ Ltd, Mizuho Bank Ltd, and Malayan Banking Berhad – based on the weakest-link approach under RAM’s criteria for guaranteed bonds.
AEON Credit is a key player in the consumer-durables and motorcycle-financing segments in Malaysia. The Company represents AEON Financial Service Co, Ltd’s footprint in the Malaysian consumer-financing market. In FY Feb 2013, AEON Credit’s gross receivables surged 58% to RM2.4 billion (FY Feb 2012: +34% to RM1.5 billion), mainly driven by the rapid expansion of its unsecured personal financing, motorcycle easy-payment and used-car easy-payment (UCEP) schemes. RAM notes that during the period, Bank Negara Malaysia (BNM) had tightened regulatory control for banks on consumer financing effective January 2012. BNM’s regulation had not applied to non-banks such as AEON Credit prior to July 2013. Moving forward, the Company is expected to maintain its growth trend, albeit at a more moderate pace.
RAM remains cautious about the Company’s asset quality as its receivables portfolio, mainly extended to the lower-income segment, is unseasoned given the rapid growth. The debt-servicing capabilities of these borrowers are often more vulnerable to adverse changes in economic conditions. We are also cognisant of the credit and operational risks arising from AEON Credit’s new businesses in UCEP and SME equipment financing. That said, the Company’s lucrative margins provide a strong buffer against credit costs.
In line with its business growth, AEON Credit’s gearing ratio had risen to 5.3 times as at 20 August 2013 (end-February 2013: 4.3 times). Its capital-adequacy ratio had also dropped to 16.3%, not far from the minimum of 16% imposed by BNM on AEON Credit. We understand that the Company is in the midst of raising capital for business growth and to refinance its maturing debts.

Media contact
Gladys Chua
(603) 7628 1049
gladys@ram.com.my





Wednesday, October 30, 2013

S&P Dow Jones Indices debuts new Shariah compliant index focusing on the MENA region - IFN

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GLOBAL: S&P Dow Jones Indices launched its new MENA Bond and Sukuk Indices yesterday, comprising of the S&P MENA Sukuk Index and the S&P MENA Bond Index. The indices assess companies domiciled in 18 countries: Algeria, Bahrain, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Syria, Tunisia, the UAE and Yemen.
The Islamic indices are screened for Shariah compliance through an international certification by a recognized Shariah supervisory board. The Sukuk and underlying assets involved will also be warranted as to their compliance with AAOIFI standards for tradable Sukuk and relevant Shariah principles similar to those established by the Dow Jones Islamic Market Indices. Charbel Azzi, the head of the Middle East and Africa for S&P Dow Jones Indices, explained that the new lists seek to provide investors with an "appropriate and timely measure of performance and trends in the Sukuk sector".
The S&P MENA Sukuk Index and its sub-indices are market-value-weighted and the securities incorporated therein are required to be US dollar-denominated bonds carrying a maturity of at least one year from the rebalancing date. In terms of the coupon rate, both fixed and floating rate coupon instruments are said to be eligible. The minimum credit ratings allowed for inclusion in the investment grade indices are ''BBB-’/ ‘Baa3’ / ‘BBB’ by S&P, Moody’s or Fitch, respectively.



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