RAM Ratings reaffirms PacLease's AA3/P1 ratings

Published on 29 September 2015

RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of Pac Lease Berhad’s (PacLease or the Company) CP/MTN Issuance Programme of up to RM500 million (2011/2018). The issue ratings incorporate our expectation that PacLease, as a wholly owned subsidiary of Oversea-Chinese Banking Corporation Limited (the Group), will continue to enjoy funding and operational support from either OCBC Bank (Malaysia) Berhad (rated AAA/Stable/P1 by RAM) or the Group, if needed.
PacLease’s asset-quality indicators have weakened since 2013 due to the impairment of several sizeable accounts. Its gross impaired-loan and annualised credit-cost ratios had slipped to 2.10% as at end-March 2015 and 0.97% in 1Q 2015 (end-December 2013: 1.28%; 2013: 0.49%), respectively. While the Company’s asset quality will likely stay under pressure given the more challenging economic environment, we do not expect further major deterioration.
As a non-deposit-taking entity, PacLease relies on wholesale borrowings to fund its lending business, exposing the Company to refinancing risks. Nonetheless, we derive comfort from its ability to tap OCBC Malaysia for funding and liquidity support. PacLease’s profitability remains robust, supported by its wide-margin products. In 1Q FY Dec 2015, the Company’s net interest margin and annualised pre-impairment ROA came in at 5.1% and 3.6%, respectively. In addition, the Company’s gearing ratio stood at 4.3 times as at end-March 2015 – well within its internal prudential limit.

Media contact
Poh Wen Jun
(603) 7628 1038
wenjun@ram.com.my

RAM Ratings reaffirms New Pantai Expressway's issue rating

Published on 23 September 2015

RAM Ratings has reaffirmed the BBB2/Stable rating of New Pantai Expressway Sdn Bhd’s (NPESB or the Company) RM250 million Junior Bai’ Bithaman Ajil Notes (2003/2016) (Junior Notes). The rating considers the lumpy principal repayments on the Junior Notes, and NPESB’s finance service coverage ratios (FSCRs) (with cash balances, post-distribution) which are expected to range between 1.44 times and 1.85 times (based on RAM’s projections) up to October 2016.
Driven by its strategic alignment, growth of traffic on the Expressway’s (or the NPE) remained healthy in FY Mar 2015, with average daily traffic (ADT) of 196,077 vehicles (+7.5% y-o-y). Given the NPE’s mature traffic profile, under RAM's stressed scenario, we expect annual traffic volume growth to moderate to 4.4% for 2016, assuming no toll-rate hike for the remaining tenure of the Junior Notes. Should the toll rates increase in 2016 as per rates in the Concession Agreement, the traffic volume is anticipated to decline 6% the same year.
Based on RAM's estimates, NPESB is envisaged to register an average annual pre-financing cashflow of RM109 million (without a rate hike) or RM139 million (with a rate hike in 2016) for the remaining tenure of the Junior Notes. Coupled with ample cash holdings in excess of RM80 million as at end-April 2015, this is expected to sufficiently cover a lumpy principal repayment of RM120 million and a RLC repayment of about RM27 million in 2016. Furthermore, we expect NPESB to curtail distributions or repayments to shareholders prior to the maturity of the Junior Notes.
As in most concession-related projects, the Company is exposed to regulatory and single-project risks. The Government has not revised toll rates for the Expressway since 2009, and in February 2011, reduced the rate for Class 1 vehicles at the PJS 2 toll plaza from RM1.60 to RM1.00, effective for a 5-year period. Nevertheless, the Company has, to date, received timely cash compensation from the Government over the last 6 years.
NPESB holds the concession for the construction, operations and maintenance of the 19.6-km intra-urban NPE.
Media contact
Wang Wai Wah
(603) 7628 1110
waiwah@ram.com.my

RAM Ratings reaffirms Abu Dhabi Commercial Bank's AAA/Stable/P1 ratings

Published on 23 September 2015

RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings of Abu Dhabi Commercial Bank PJCS (ADCB or the Bank) and the AAA(bg)/Stable rating of the senior notes issued under ADCB Finance (Cayman) Limited’s RM3.5 billion MTN Programme (2010/2030). ADCB Finance is the funding conduit of the Bank, and the debt facility is backed by an irrevocable and unconditional guarantee provided by the Bank.
ADCB is the UAE’s fourth-largest bank by assets and commands a large share of the banking system’s deposits. The Bank is 58%-owned by Abu Dhabi Investment Council, an investment arm of the Government of Abu Dhabi. Given its government ownership and systemic importance, we believe that government support will be forthcoming, if required. In addition, ADCB’s ratings incorporate its strong franchise, robust loss-absorption capacity, concentrated loan book and deposits base, moderate asset quality as well as reliance on wholesale funding.
While ADCB’s loan book remains concentrated (by borrower and sector), the degree of concentration has reduced, thanks to the Bank’s efforts to increase the granularity of its lending portfolio. ADCB’s gross impaired-loan (GIL) ratio improved to a moderate 3.1% as at end-December 2014 from 4.1% a year earlier, largely attributable to the real-estate segment. The Bank’s GIL ratio had eased further to 3.0% as at end-June 2015 amid an expanding loan base. ADCB’s credit-cost ratio had also been reduced to an annualised 0.4% in 1H fiscal 2015 (fiscal 2013: 1.0%) while its GIL coverage ratio stood at a sturdy 142% as at end-June 2015.
ADCB’s loans-to-deposits ratio remained high at 111% as at end-June 2015, signifying a heavier reliance on wholesale funding. On balance, the Bank’s wholesale-funding sources are well diversified (by markets and currencies) while its solid liquidity position moderates its depositor-concentration risk. ADCB’s Basel III liquidity coverage ratio was well above 100% as at end-December 2014.
ADCB has gained good traction in the expansion of low-cost current- and savings-account deposits, which made up 49% of customer deposits as at end-June 2015 (end-December 2010: 22%). The accompanying lower funding costs, coupled with reduced impairment charges, have strengthened ADCB’s profitability over the years.
The Bank’s pre-tax profit jumped 16% y-o-y in fiscal 2014 and 17% in 1H fiscal 2015, when its annualised return on risk-weighted assets came in at a high 3.2%.
Looking ahead, low oil prices are expected to moderate the UAE’s economic growth and could lead to asset-quality pressure, especially in the real-estate sector, which made up a third of ADCB’s loan book as at end-June 2015. Nonetheless, the Bank’s robust pre-provision earnings and capitalisation provide a strong buffer against potential losses. The Bank’s Basel II tier-1 capital ratio stood at 16% as at end-June 2015.
Media contact
Lim Yu Cheng
(603) 7628 1188
yucheng@ram.com.my

CIMB Daily Fixed Income Commentary - 30 Sep 2015

Market Roundup

• US Treasuries were boosted after a cautious early morning session of trading by the release of weaker than expected US house prices data. The morning session trading was under the cloud of scheduled Janet Yellen speech later this week (in which she is expected to reiterate the Fed’s view of rate hike this year) and Friday’s scheduled release of the Sep non-farm payrolls data.
• The MYR and IDR remained under pressure, seen around 4.4590 and 14685 respectively, this morning (though THB and SGD was firmer against the weaker USD) amid cautious sentiment ahead of Yellen’s speech and NFP data later this week, as well as sustained worries over China’s growth and the commodities slump (including troubles at commodities giant Glencore). We expect both MYR and IDR to remain pressured today with implied volatility still high at 17.0 (1M vol) and 13.2 respectively now.
• The Ringgit government bond market opened on weak footing but a firm 15-year MGS auction helped soothe sentiment, even as the Ringgit continued to be weak and Malaysia’s CDS under pressure on emerging market fears. On the other hand, Ringgit IRS rates rose, as swap players’ focus remained on the weak Ringgit.
• Thai government bonds closed mixed within a pretty tight range on Tuesday but longer term papers remained under pressure alongside the EM weakness and concerns ahead of anticipated firm US economic data and impending FOMC rate hikes. Weak THB around 36.453 continued to be a major driver for bonds though foreign investors were small net sellers of Bt618 million of Thai bonds during the day.
• Indonesia’s government bond yield curve rose on risk-off mode Tuesday, with foreign interbanks being net sellers in a thin market. The 10-year proxy was given at 9.80% in the morning session. However, the market rebounded after the bond auction result was announced, with the government issuing only IDR1.55 trillion out of IDR8.25 trillion incoming bids (downsized from initial target issuance of IDR 8 trillion).
• Asian credits had another bad day as risk-off sentiment continued. Amid the weaker stock markets in the region, spreads of Asian credits were widening as much as 30bps. On top of these, concerns over the Fed hike, continued weak currencies and commodity prices and releases of weak economic data (especially China’s decline in industrial sector profits) remained the major drags on credits.

MARC AFFIRMS ITS AAAIS(FG) RATING ON ANTARA STEEL MILLS SDN BHD’S RM300.0 MILLION SUKUK MUDHARABAH

MARC has affirmed its rating of AAA_IS(fg) on Antara Steel Mills Sdn Bhd’s (Antara) RM300.0 million Sukuk Mudharabah Programme with a stable outlook. The affirmed rating and outlook are underpinned by the unconditional and irrevocable financial guarantee provided by Danajamin Nasional Berhad (Danajamin) which carries MARC’s financial strength rating of AAA with a stable outlook.

Antara’s standalone credit profile has continued to be affected by the challenging operating environment for domestic steel players. As a consequence, Antara initiated extended plant shutdowns, which continued to result in low capacity utilisation rates. For the nine-month period ended March 31, 2015 (9MFY2015), the utilisation rate stood at 43.1% for its bars and billet plant in Pasir Gudang and at 61.0% for its hot briquetted iron (HBI) plant in Labuan. The utilisation rates remained unchanged from the preceding period.

For 9MFY2015, Antara’s unaudited revenue fell 7.7% year-on-year to RM819.2 million on weak demand and lower selling prices. Operating loss at its Pasir Gudang plant widened to RM35.5 million (9MFY2014: negative RM29.1 million), which was offset by the operating profit of RM43.7 million at the Labuan plant (9MFY2014: negative RM21.6 million). The Labuan plant’s operating profit reflects the absence of the impact from a 69-day shutdown in the previous year, arising from a vessel collision with the plant’s ship loader system. For 9MFY2015, Antara registered a pre-tax profit of RM24.5 million, partly supported by an insurance claim of RM24.1 million from the vessel collision.

MARC observes persistent outstanding of receivables from Antara’s related companies, in particular Megasteel Sdn Bhd (Megasteel) and Lion DRI Sdn Bhd (Lion DRI). At end-9MFY2015, outstanding receivables from them stood at a total of RM75.9 million, while about RM344.5 million of amount due from holding and related companies remains outstanding. The company had provided impairment losses of RM52.5 million on the receivables in FY2014. The rating agency views that any repayment delays from the related entities and/or further write-offs would erode Antara’s credit profile.

MARC remains concerned on the steelmaker’s ability to meet its sizeable payables, which stood at RM276.1 million as at end-9MFY2015 (end-FY2014: RM351.1 million). Cash flow generation was weak at RM0.4 million in the period. However, Antara’s leverage remained low with a debt-to-equity (DE) of 0.27 times in 9MFY2015 (end-FY2014: 0.27 times) with total borrowings consisting mostly of the outstanding rated sukuk of RM180.0 million following the scheduled principal repayment of RM60.0 million in June 2015. Antara would need to generate sufficient cash flows from operations to build up its depleting cash reserves to meet its forthcoming repayment of RM60.0 million under the rated sukuk in June 2016.

Noteholders are, however, insulated from the downside risks in relation to Antara’s credit profile by virtue of the guarantee provided by Danajamin. Any changes in the supported ratings or rating outlook will be primarily driven by changes in Danajamin’s credit strength.

Contacts: Ngiam Tee Wei, +603-2082 2268/ teewei@marc.com.my; Yap Lai Ken, +603-2082 2247/ laiken@marc.com.my.

September 29, 2015