RAM Ratings revises PLSA’s rating outlook to negative, reaffirms Senior and Junior Sukuk ratings

Published on 31 December 2013

RAM Ratings has revised the outlook on Projek Lintasan Shah Alam Sdn Bhd’s (PLSA or the Company) long-term ratings, to negative from stable. The negative outlook reflects the Company’s weaker longer-term cash-generating capacity owing to the subdued pace of property launches at the Alam Impian township. Concurrently, we have reaffirmed the respective A1 and A3 ratings of the Company’s RM330 million Sukuk Ijarah (Senior Sukuk) (2008/2027) and RM415 million Sukuk Mudharabah (Junior Sukuk) (2008/2037). PLSA is the concessionaire for the 14.7-km Lebuhraya Kemuning-Shah Alam (the Highway) in Selangor, under a concession agreement that is valid until 31 July 2047. The rating difference between the Senior and Junior Sukuk is premised on the latter’s subordination in terms of cashflow priority and security.

A revised traffic study completed by an external traffic consultant this year indicates that PLSA will have insufficient funds to honour its financial obligations by 2023. The Company has thus embarked on a refinancing exercise of the Senior Sukuk (slated for completion by 1H 2014) while plans for the Junior Sukuk are yet to be finalised. Any delay in the refinancing exercise will necessitate a credit reassessment and may result in a multi-notch rating downgrade for both the Senior and Junior Sukuk.

Meawhile, PLSA’s debt-servicing ability is projected to remain adequate over the next 5 years, backed by its strong cash reserves and annual pre-financing cashflow. The Company’s cashflow during this period is expected to be supported by the steady traffic volume of the Highway; for 10M 2013, the Highway registered an average daily traffic volume of 60,970 vehicles. On the other hand, the rating is moderated by the Company’s exposure to regulatory and single-project risks.

Media contact

Jocelyn Chiang

(603) 7628 1124

jocelyn@ram.com.my

The ICD, Palestine Investment Fund and Palestine Islamic Bank launch the Palestine Ijarah Company - IFN

The ICD, Palestine Investment Fund and Palestine Islamic Bank launch the Palestine Ijarah Company

Daily Cover

PALESTINE: A partnership between the Islamic Corporation for the Development of the Private Sector (ICD), the Palestine Investment Fund and Palestine Islamic Bank has seen the official launch of the Palestine Ijara Company (PIC). The company will be offering asset-based Ijarah financing to Palestine’s SMEs in various economic sectors including agribusiness, construction, education, healthcare, industry and tourism. The first company of its kind in Palestine, PIC is also the ICD’s first project in the country and the most recent addition to the 17 similar Ijarah companies established by the ICD in locations including Algeria, Egypt, Nigeria and Uzbekistan. Bayan Qasem, the acting general manager of the Palestine Islamic Bank, described the launch as “a significant milestone in the development of the Palestinian Islamic-financing sector”. PIC will specialize in Shariah compliant financing, with the aim of providing new products and an additional avenue for funding to SMEs in Palestine, growing SME operations and contributing to job creating through this method. The financing offered by PIC will range between US$100,000 and US$1 million per transaction. The chairman of the Palestinian Capital Markets Authority, Maher Al Masri, shared his opinion that PIC would add depth to the Palestinian Islamic finance sector via the new financial instruments that the company will be offering; an opinion echoed by Mahmoud Al Khoshman, the ICD’s advisor and representative on the board of PIC: “PIC will help add depth and diversity to the Palestinian financial services sector. As a strategic partner in the company, [the] ICD will utilize its extensive experience and expertise... to ensure that the company meets its stated goals and objectives.” Palestine Investment Fund’s involvement in the establishment of PIC comes through its specialized SME investment and financing arm, Sharakat Fund, a unified investment and financing platform established in 2012. The Palestine Investment Fund is a financially and administratively independent public shareholding company, owned by the people of Palestine, with the stated aim of fostering of economic development. Dr Mohammed Mustafa, the deputy prime minister for economic affairs and the chairman of the Palestine Investment Fund, indicated his hope that the partnership between the ICD and Palestine would continue in the form of other projects.

RAM Ratings has reaffirmed the AAA(s)/stable rating of Lembaga Kemajuan Perusahaan Pertanian Negeri Pahang’s (LKPP or the Group) RM300 million Bai’ Bithaman Ajil Islamic Debt Securities (2005/2015) (BaIDS).

Published on 30 December 2013

RAM Ratings has reaffirmed the AAA(s)/stable rating of Lembaga Kemajuan Perusahaan Pertanian Negeri Pahang’s (LKPP or the Group) RM300 million Bai’ Bithaman Ajil Islamic Debt Securities (2005/2015) (BaIDS). The enhanced rating reflects an unconditional and irrevocable guarantee extended by the State Government of Pahang (the State), with the approval of the Federal Government of Malaysia. The guarantee enhances the credit profile of the BaIDS beyond LKPP’s stand-alone credit strength.
LKPP is a state-owned entity whose operations can be broadly divided into 2 segments-social and commercial. Under the commercial division, its main focus is the development of Pahang’s agricultural sector. The Group is largely involved in the cultivation of oil-palm, which accounts for about 95% of its revenue. LKPP had 41,848 hectares of land planted with oil palm as at end-July 2013. Under its social division, the Group is responsible for improving the living standards of the rural community by providing requisite infrastructure for the development of agricultural activities and implementing programmes for the development of entrepreneurs in rural areas.
Excluding the State’s guarantee, LKPP’s credit fundamentals are supported by its superior balance sheet and very strong liquidity position as well as its favourable tree-maturity profile. Some 72% of its palms fall within the high-yielding “prime” and “young” brackets. With its replanting programme, the Group’s tree-maturity profile is envisaged to continue to support its fresh fruit bunch yields. LKPP reported a net-cash position as at end-December 2012 while its operating cash flow debt coverage ratio came up to a healthy 0.26 times.
These factors are, however, moderated by LKPP’s higher cost structure than that of its peers and is a small player in the palm oil industry. The Group also has to balance its social obligations with its commercial agenda, in fostering the development of rural settlers. In addition, LKPP’s financials are vulnerable to the cyclicality of the industry, characterised by volatile crude palm oil prices.

Media contact
Ben Inn
(603) 7628 1024
ben@ram.com.my

RAM Ratings has reaffirmed the AA3/stable rating of Jati Cakerawala Sdn Bhd’s (the Company) RM540 million Sukuk Murabahah (2013/2023)

Published on 30 December 2013

RAM Ratings has reaffirmed the AA3/stable rating of Jati Cakerawala Sdn Bhd’s (the Company) RM540 million Sukuk Murabahah (2013/2023) (Sukuk). Jati is an investment-holding company that owns 80% of Teknologi Tenaga Perlis Consortium Sdn Bhd (TTPC) – an IPP that owns and operates a 650-MW combined-cycle, gas-turbine power plant in Kuala Sungai Baru, Perlis.
The rating reflects TTPC’s sturdy business profile, underscored by its commendable operational performance and strong terms of its Power Purchase Agreement (PPA) with Tenaga Nasional Berhad (TNB) – a strong counterparty whose debt security is rated AAA/stable by RAM.
The rating of the Sukuk has been notched down from that of TTPC’s RM835 million Sukuk Murabahah (2013/2023) (rated AA1/stable) due to its lower priority in terms of both cashflow waterfall and security. This is because the repayment of Jati’s Sukuk depends on TTPC’s dividends as its only source of cashflow. The 2-notch rating differential between Jati’s and TTPC’s sukuk issues reflects the former’s low level of subordination and projected minimum subordinated finance service coverage ratio (with cash balances, post-distribution) of 1.50 times throughout its tenure.
Our sensitised cashflow projections assume that both TTPC and Jati will pay optimum dividends to their respective shareholders on a forward-looking basis throughout the tenures of both sukuk (as opposed to only the year of assessment) when adhering to their financial covenants. We highlight that Jati is expected to be circumspect in its distributions – and this is consistent with the Company’s representation – as excessive distributions in any year may have a detrimental impact on its debt-servicing ability.

Media contact
Chin Wynn
(603) 7628 1170
chinwynn@ram.com.my

RAM Ratings has reaffirmed the AA1/stable rating of Teknologi Tenaga Perlis Consortium Sdn Bhd’s (TTPC or the Company) RM835 million Sukuk Murabahah (2013/2023).

Published on 30 December 2013

RAM Ratings has reaffirmed the AA1/stable rating of Teknologi Tenaga Perlis Consortium Sdn Bhd’s (TTPC or the Company) RM835 million Sukuk Murabahah (2013/2023). The rating reflects the Company’s sturdy business profile, underscored by the strong terms of its Power Purchase Agreement (PPA) with Tenaga Nasional Berhad (TNB), its plant’s laudable operational track record, as well as the Company’s robust debt-servicing ability. Further comfort is derived from the strong credit profile of TNB – the Company’s sole off-taker – whose debt securities are rated AAA/stable by RAM. As with other IPPs, TTPC’s rating is moderated by inherent regulatory and single-project risks.
During the period under review, TTPC maintained its commendable operational performance, hence enabling it to meet all the performance requirements set out in the PPA to earn full available capacity payments. At the same time, the Company successfully met its third Availability Target block (i.e. 2010-2012) and was also able to operate within the unscheduled outage limit of 6% while fully passing through its fuel costs to TNB. 
Based on RAM’s sensitised cashflow projections, TTPC is expected to generate an average annual pre-financing cashflow of about RM210 million throughout the tenure of the Sukuk. This translates into a strong finance service coverage ratio (with cash balances, post-distribution) of 1.80 times. Our cashflow analysis assumes that TTPC will pay optimum dividends to its shareholders on a forward-looking basis throughout the Sukuk’s tenure (as opposed to only the year of assessment) when adhering to its financial covenants.

TTPC owns and operates a 650-MW combined-cycle, gas-turbine power plant in Kuala Sungai Baru, Perlis, under a 21-year PPA with TNB, which expires on 31 March 2024.

Media contact
Chin Wynn
(603) 7628 1170
chinwynn@ram.com.my