FW: RAM Ratings reaffirms Widad Capital’s AA2/Stable rating

 

Published on 28 Sep 2018.

RAM Ratings has reaffirmed the AA2/Stable rating of Widad Capital Sdn Bhd's (the Company) Sukuk Murabahah Programme of up to RM110.0 million in Nominal Value. This is premised on our expectation that the Company's stable cashflow and robust debt-servicing ability will remain underpinned by predictable monthly contractual payments, pursuant to its facilities maintenance contract with the Public Works Department (PWD) to maintain the National Palace (the Contract).

Widad Capital is entitled to monthly payments from the PWD according to a schedule under the Contract. However, these monthly receipts are conditional on the performance of the maintenance work, with a portion being the provisional maintenance work, which is less certain in terms of timing and value. Under RAM's stressed scenario, Widad Capital is projected to register respective minimum and average finance service cover ratios (with cash balances, calculated over a 12-month period in payment months) of 1.93 and 2.35 times through the remaining tenure of the Sukuk. These are despite our assumption of an 80% reduction on the remaining provisional sum (as at end-May 2018, about 23% of the initial contracted value of RM68.11 million had been realised).

Widad Builders Sdn Bhd is the sub-contractor appointed by the Company to undertake the facilities maintenance work; the former has a reputable operating track record, having 3 years of experience in maintaining the palace prior to the current contract. Deductions on the monthly receipts will be effected on poor workmanship and this will be borne by Widad Builders. For the past year, the work performed has been satisfactory as the deduction imposed has remained minimal at an average of 1.9% of monthly work done. Having the Government of Malaysia – via the PWD – as the ultimate obligor of contractual payments to the Company minimises the latter's counterparty risk. The Sukuk holders are further protected by the tight structure and restrictive covenants of the transaction, notably the prohibition of dividend payments during the Sukuk's tenure.

Despite the abovementioned strengths, we remain cognisant of the transaction's moderately aggressive financing structure, particularly the advancement of a substantial 78% of the RM110 million of proceeds from the Sukuk to Widad Capital's shareholder, mainly for working-capital purposes. Moreover, the Company is sensitive to delays in the timing of contractual payments. On this front, we note that payments have been mostly prompt since the commencement of the Contract (i.e. July 2015). The Company is also exposed to the risk of termination of the Contract should it fail to carry out its agreed obligations and remedy any breach within the stipulated timeline, even though the risk is low. 

Widad Capital is a wholly owned subsidiary of Widad Builders which is a wholly owned subsidiary of Bursa-listed Ideal Jacobs (Malaysia) Corporation Bhd, controlled by Tan Sri Muhammad Ikmal via his stakes in Widad Business Group. The latter has been awarded the Contract for the management, operation and maintenance of the National Palace on Jalan Tuanku Abdul Halim, Kuala Lumpur (formerly Jalan Duta), for 7 years effective July 2015. The Contract was novated to Widad Capital on 25 July 2016, with Widad Builders appointed as the sub-contractor to undertake facilities maintenance work.

 

Analytical contact
Yip Chee Meng
(603) 7628 1187
cmyip@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

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FW: MARC downgrades Talam Transform’s Settlement BaIDs rating to CIS

 

Posted Date: September 28, 2018

MARC has downgraded Talam Transform Berhad's (Talam) RM134.2 million Settlement Bithaman Ajil Islamic Debt Securities (BaIDs) rating to C_IS from B-_IS.

The downgrade reflects the increased uncertainty of Talam's ability to meet its upcoming final BaIDs payment of RM52.1 million on June 28, 2019. Talam has been undertaking asset disposals, particularly land parcel sales in the Klang Valley, to meet its financial obligations in the past but the process has stalled partly due to the current weak property market. It has a sizeable land bank of 962.9 acres, of which the company has estimated its unencumbered portion to be valued at about RM680 million as at end-April 2018.

For financial year ended January 31, 2018 (FY2018), the group recorded a significant 49.8% y-o-y decline in revenue to RM56.7 million largely due to lower sales of land parcels. It recorded pre-tax losses of RM21.9 million. Total borrowings stood at RM109.9 million including the BaIDs, and cash reserves amounted to RM7.3 million as at end-1QFY2019. The rating agency understands that Talam has pending land sales totalling RM114.8 million, from which the group expects to receive net cash of about RM18.9 million in FY2019. Although new land divestment could ease the pressure on its liquidity, MARC expects timely asset disposal to be challenging.

The outstanding BaIDs are partially secured against property units and a land parcel in Taman Puncak Jalil, Bukit Jalil, with an aggregate value of RM18.7 million as at end-April 2018, providing a low security coverage of 0.36 times.

Contact:
Wan Abdul Muiz Wan Abdul Ghafar, +603-2717 2939/ muiz@marc.com.my

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FW: MARC affirms Ranhill Powertron II’s ratings with stable outlook

 

Posted Date: September 28, 2018

MARC has affirmed its ratings on Ranhill Powertron II Sdn Bhd's (RPII) RM190.0 million outstanding Islamic Medium-Term Notes (IMTN) and RM350.0 million outstanding guaranteed IMTN at AA_IS and AAA_IS(fg). The outlook on the ratings is stable.

The rating on the guaranteed IMTN reflects the unconditional and irrevocable Kafalah guarantee provided by financial guarantee insurer Danajamin Nasional Berhad (Danajamin) on which MARC has an insurer financial strength rating of AAA/stable and a long-term counterparty credit rating of AAA/stable. The rating on the IMTN reflects RPII's sufficient projected cash flow coverages which are underpinned by the favourable terms of its power purchase agreement (PPA) with the offtaker Sabah Electricity Sdn Bhd (SESB), the sole electrical transmission system operator in Sabah, which is 83%-owned by Tenaga Nasional Berhad.

The stable outlook on the IMTN reflects MARC's expectations that RPII will continue to demonstrate commendable operational performance and manage its financial metrics in line with its current rating. However, if the liquidity buffer were to decline such that the non-cash financial service coverage ratio (FSCR) is below 1.0x, the outlook would be revised to negative. Meanwhile, any changes in the rating and/or outlook of the guaranteed IMTN will be primarily driven by changes in Danajamin's credit strength.

RPII owns and operates Rugading Power Station, a 190-megawatt (MW) combined-cycle gas turbine (CCGT) power plant in Sabah, under a 21-year PPA. The plant has continued to meet its availability target, heat rate and unscheduled outage rate as per PPA requirements. However, excess energy capacity in Sabah which has affected energy payments (EP) to RPII and the potential reliance on cash buffers from 2023 onwards when a step-down in the capacity rate financial (CRF) occurs remain key concerns.

RPII's average availability target (AT) declined to 91.7% in 2017 (2016: 94.4%) due to a scheduled maintenance on the steam turbine in September 2017. The power plant's average AT subsequently improved to 96.3% during 1H2018. RPII received actual capacity payments (CP) of RM96.9 million and RM48.1 million for 2017 and 1H2018, which were in line with the budget. However, EP was 6.6% lower-than-budget at RM86.4 million in 2017 due to a lower capacity factor of 56.7%. This improved to 61.8% in 1H2018 on a higher load dispatched from the grid, providing higher EP of RM42.4 million against the budgeted RM37.4 million.

For 2017, RPII's operating profit before interest and taxes (OPBIT) stood higher at RM39.7 million attributable mainly to lower maintenance cost, which contributed to a turnaround to a profit of RM1.6 million. Cash flow from operations (CFO) improved to RM86.5 million (2016: RM52.9 million), leading to higher cash reserves at RM122.3 million. RPII's finance service cover ratio (FSCR) stood at 2.56 times (x) while the facility debt-to-equity ratio was at 3.63x.

As at 1H2018, RPII's profit before tax stood lower at RM0.9 million compared to RM2.1 million in 1H2017 attributed to a reversal of payables. The company's cash reserves of RM79.6 million at end-1H2018 (1H2017: RM86.4 million) are sufficient to service its next profit payment and principal payment of RM50.0 million in 2019.

Under the latest base case cash flow projections, the minimum and average pre-distribution FSCR over the next five years are 2.08x and 2.22x. Based on MARC's sensitivity analysis, RPII's cash flow coverage is resilient against stressed events with a 50.0% load factor, among other assumptions, but could experience liquidity challenges between 2022 and 2028 upon CRF step-down beginning 2023. In this regard, MARC expects RPII to exercise discipline on dividend distributions to maintain sufficient liquidity buffer.

Contacts:
Lim Chi Ching, +603-2717 2963/ chiching@marc.com.my;
David Lee, +603-2717 2955/ david@marc.com.my.

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FW: RAM Ratings downgrades rating of MRCB Southern Link’s Senior Sukuk, maintains negative Rating Watch

 

Published on 26 Sep 2018.

RAM Ratings has downgraded the long-term rating of MRCB Southern Link Berhad's (MRCBSL or the Company) RM845 million Senior Sukuk to C1 from BB3. At the same time, we have maintained the Rating Watch on the issue rating, with a negative outlook. Our rating action is premised on the heightened default risk of the sukuk following the abolishment of toll collections at the 8.62-km Eastern Dispersal Link (EDL or the Expressway) since 1 January 2018, and the takeover of the Expressway by the Government of Malaysia (GoM). The Company's inability to collect toll from the Expressway has dwindled its cash reserves. MRCBSL's remaining cash balance is insufficient to honour its RM74.6 million of financial obligations due under the sukuk within the next three months, i.e. between 21 and 24 December 2018.

While negotiations are still ongoing between the EDL's toll concessionaire – MRCB Lingkaran Selatan Sdn Bhd – and the GoM to mutually terminate the Expressway's Concession Agreement and determine a final settlement amount, no formal agreement has been inked to date. We have maintained the negative Rating Watch on the sukuk to reflect its potential downgrade to D if the Company were to be unable to honour its upcoming semi-annual sukuk repayment due between 21 and 24 December 2018 without any external liquidity support, including the receipt of the financial cash settlement from the GoM to the concessionaire. 

In the meantime, MRCBSL continues to engage with its sukukholders and sukuk trustee; the sukukholders have already granted the Company an indulgence on meeting its covenants up to 20 December 2018. This comes alongside their consent to not declare an event of default while negotiations are underway. Should negotiations conclude within the next three months, the sukuk is expected to be redeemed early upon the receipt of the cash settlement amount by the toll concessionaire. 

MRCBSL's financial commitments are supported by back-to-back payments from MRCB Lingkaran Selatan Sdn Bhd - the concessionaire of the EDL. Given the strong credit link between MRCBSL and the concessionaire, we view both companies in aggregate from a credit standpoint. MRCBSL is a funding conduit for the Expressway.

RAM's Rating Watch highlights a possible change in an issuer's sukuk rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated sukuk under special surveillance by RAM. In a broader sense, it covers any event that may result in changes in the risk factors relating to the repayment of principal and profit.

Issues will appear on RAM's Rating Watch when some of the above events are expected to occur or have occurred. Appearance on RAM's Rating Watch, however, does not inevitably mean that the rating will be changed. It only means that a rating is under evaluation by RAM and a final affirmation is expected to be announced. A "positive" outlook indicates that a rating may be raised while a "negative" outlook indicates that a rating may be lowered. A "developing" outlook refers to those unusual situations in which future events are so unclear that the rating may potentially be raised or lowered.

 

Analytical contact
Chinthamani Thanneermalai
(603) 7628 1013
chinthamani@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

 

 

FW: AAM News: India, London stock exchanges plan dual listing of masala bonds

 

 

 

If you cannot view this mail please click here.   Latest News  |  Magazine  |  Events  |  Best of the Best Awards  |  E-Magazine   Latest News 26 September 2018 India, London stock exchanges plan dual listing of masala bonds Market Presence: National Stock Exchange of India says the dual listing will reduce issuing costs   HSBC Securities Services named custodian of Ping An's first RAIF fund Market Access: The first sub-fund to be launched under the structure will invest in bonds of emerging markets, including China Read More New Hong Kong group to advise government on green finance Responsible Investing: The group will assist the government to develop green finance policies Read More Singapore and China to deepen financial cooperation Alliances & Agreements: The next phase of Singapore-China cooperation will focus on four key areas Read More Monthly Top Ten World Bank launches world's first blockchain-powered bonds Singapore and Dubai regulators sign fintech pact State Street fills new Asia Pacific insurance position Baidu gets China fund distribution licence CPPIB, Goodman inject $1.75 billion into China logistics joint venture Singapore central bank, four others partner to harness blockchain technology PE Panorama: Cutting an offspring loose Capital Group hires for three new Asia Pacific positions Singapore's Temasek, Korea's KVIC to set up US$213.2 million fund, report says Private lender Bank of Singapore appoints new chief investment officer   Coming Up         As per the Guidance on Direct Marketing issued by the Office of the Privacy Commissioner for Personal Data in Hong Kong which took effect on April 1, 2013, we would like to inform you that we intend to continue sending you promotional emails such as newsletters, new promotions and product updates. If you do not wish to receive such emails, please contact us at news@asiaasset.com. For enquiries please contact us at (852) 2547-7331.     Unsubscribe to this mailing list COPYRIGHT © 2018 ASIA ASSET MANAGEMENT. ALL RIGHTS RESERVED. 1701 Singga Commercial Centre, 148 Connaught Road West, Hong Kong   Tel: (852) 2547-7331   E-mail: enquiries@asiaasset.com

 

 

FW: MARC affirms rating on Kapar Energy Ventures’s RM2.0 billion Sukuk Ijarah at AA+IS

 

Posted Date: September 26, 2018

MARC has affirmed its rating of AA+_IS on Kapar Energy Ventures Sdn Bhd's (KEV) RM2.0 billion Sukuk Ijarah with a stable outlook. KEV is a 60.0%-owned subsidiary of Tenaga Nasional Berhad (TNB) which owns and operates Kapar Power Station (KPS), the largest domestic multi-fuel thermal power station. KPS has four generating facilities (GF) with a combined nominal capacity of 2,420 megawatts (MW).

The affirmed rating incorporates a two-notch support uplift from KEV's standalone rating premised on MARC's assessment of a very high probability of parental support from TNB. The assessment is based on TNB's strategic interest in KEV and the strong operational linkage between both entities. TNB carries a senior unsecured rating of AAA/Stable from MARC. The sukuk is secured by revenue from the sale of electricity under a 25-year power purchase agreement (PPA) with TNB which expires in 2029, approximately three years after the sukuk's final redemption in 2026.

The rating also considers the low fuel supply risk on the back of long-term supply agreements with TNB Fuel Services Sdn Bhd for coal and medium fuel oil, and gas sale agreement with Petroliam Nasional Berhad (PETRONAS) for natural gas. Downward pressure on KEV's standalone rating would emerge if there are changes in TNB's rating and/or its supportive stance towards KEV. In addition, persistent operational issues at the power plant would also exert pressure on the rating.

During financial year ended August 31, 2017 (FY2017), all the four GFs breached their respective unplanned outage limits (UOL). Cracks on the inner wall of flue-gas stacks and boiler tube leaks led to an increase in the outage rates. The power plant had its unplanned outage rate (UOR) reset in June 2016 and thus registered a lower average rolling UOR in FY2016. This underscores MARC's earlier assertion that while resetting the rates has given KEV some reprieve, the GFs would remain susceptible to operational and technical issues given their age and design.

During FY2017, KEV recorded an increase in both capacity payments (CP) and energy payments (EP). CP marginally increased by 1.0% to RM620.5 million as KEV benefitted from the reset of the UOR. The 16.3% y-o-y increase in EP to RM1,828.7 million is mainly due to higher fuel prices despite having generated a lower amount of electricity in FY2017. Coupled with higher other operating income, KEV's operating profit before interest and tax (OPBIT) stood higher at RM234.9 million (FY2016: RM131.7 million). This has led to KEV's first pre-tax profit since FY2013.

Cash flow from operations declined 29.3% y-o-y to RM271.1 million on the back of an increase in intercompany and inventory balances. With a higher repayment of borrowings and interest expenses, cash and deposits stood lower at RM299.8 million. The amount in KEV's finance service reserve account is sufficient to service its next profit payment and principal payment of RM200.0 million in July 2019. For the remaining sukuk tenure, KEV's financial projections show minimum and average pre-distribution finance service cover ratios (FSCR) of 1.54 times (x) and 1.91x. Sensitivity analysis demonstrates KEV's susceptibility to a decline in capacity revenue and UOR degradation compared to an increase in capital expenditure as well as repair and maintenance costs.

During the period under review, the terms of the redeemable unsecured loan stocks (RULS) were renegotiated. Effective December 2017, the RULS bear an annual interest of 8.0% compared to the previous 15.0% while unpaid interest will no longer attract compounding interest. This led to a derecognition of RM636.7 million of outstanding RULS which was treated as additional capital contribution to the company's shareholders' equity. With the improvement in KEV's equity base to RM573.2 million, its leverage ratio improved to 4.67x. The treatment of KEV's RULS as equity under the sukuk facility has sustained KEV's leverage covenant compliance. As at January 8, 2018, KEV's facility-to-equity ratio stood at 50:50, which is well below the covenanted ratio of 80:20.

The deferral of payments on the RULS has in the past provided KEV with the ability and flexibility to preserve liquidity for its senior debt service requirements. As of end-August 2017, the outstanding RULS owing to KEV's shareholders stood at RM1,268.1 million. While principal payments on the RULS would reduce the subordinated debt cushion against downside surprises in KEV's operating performance, the rating agency notes that KEV will have to maintain a forward-looking annual FSCR of 1.30x and a debt-to-equity ratio of not more than 80:20 throughout the tenure of the Sukuk. The aforementioned distribution test will ensure that liquidity is conserved for senior debt service requirements in the event of a significant underperformance of KEV's base case financial forecast.

Contacts:
Lim Chi Ching, +603-2717 2963/ chiching@marc.com.my;
David Lee, +603-2717 2955/ david@marc.com.my.

 

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FW: MARC affirms its AAAIS rating on TNB Northern Energy's outstanding RM1.535 billion sukuk

Posted Date: September 25, 2018

MARC has affirmed its AAA_IS rating on TNB Northern Energy Berhad's (TNB Northern Energy) outstanding Islamic securities (sukuk) of RM1.535 billion with a stable outlook. The rating and outlook are equalised with those of TNB Northern Energy’s ultimate parent, Tenaga Nasional Berhad (TNB) on which MARC currently has a senior unsecured rating of AAA/Stable. The rating equalisation is based on financial commitment from TNB to provide a post-completion rolling guarantee in favour of sukukholders. MARC’s assessment to equalise the rating is further underpinned by TNB’s undertaking to maintain full ownership of TNB Northern Energy and its parent company, TNB Prai Sdn Bhd (TNB Prai) throughout the sukuk tenure as well as TNB’s substantial operational and financial linkages with both TNB Northern Energy and TNB Prai.

TNB Northern Energy is a funding vehicle of TNB Prai, a wholly-owned subsidiary of TNB, to construct a 1,071.43-megawatt (MW) combined-cycle gas turbine power plant in Seberang Perai Tengah, Penang. TNB Prai commenced operations of the gas power plant in February 2016 and has been receiving availability-based revenue under a 21-year power purchase agreement (PPA) with offtaker TNB.

In 2017, TNB Prai received RM184.4 million in capacity payments (CP) which is lower than projected by 7.7%. The reduced CP were due to the increase of the unplanned outage rate (UOR) to 13.6% for one of its two generating units, Unit 20. Concurrently, TNB Prai’s overall average availability target declined to 92% as at end-December 2017 (2016: 96%). The plant’s ability to meet the contractual average availability target (CAAT) of 94% of its contract block for 2016-2018 would hinge on an above average plant performance in 2018. Failure to adhere to the PPA-specified CAAT would result in penalties of RM274,579.62 per block per day to TNB.

While the issues reported in 2016 have been resolved, the plant’s registered heat rates persistently remained higher than the PPA-specified requirements. The higher plant heat rates were attributed to a series of plant restarts upon the completion of planned and unplanned outages. In October 2017, the plant experienced an unplanned outage due to a problem with the compressor of its Siemens SGT5-8000H gas turbine, coupled with a lower actual capacity factor during the year. As a result, TNB Prai failed to achieve a full fuel cost pass-through and the energy payments were 14.8% below projections. MARC notes that based on the long-term maintenance programme contract, the equipment supplier would be liable to restore any affected gas turbine during the next major inspection in January 2019.

For financial year ended August 31, 2017 (FY2017), TNB Prai posted revenue of RM1,214.8 million (FY2016: RM600.5 million) in its first full year of completed plant operations. Its operating profit before interest and tax stood at RM26.0 million on the back of lower expenses and a one-off liquidated damages settlement of RM24.3 million with the engineering, procurement and construction contractor. During the period under review, the plant incurred penalties of RM15.3 million mainly due to unplanned outages and breaches on the tested annual availability capacity. MARC notes with concern the plant’s persistent underperformance attributed to operational factors and will continue to monitor any potential residual technical issues that may surface.

TNB Northern Energy and TNB Prai’s designated account balances and unit trust investments’ combined total of RM158.5 million as at June 30, 2018 is sufficient to cover debt obligations for the next 12 months. The latest base case cash flow projection as at June 2018 showed an upward revision in the operational cash balance to RM14.9 million as at December 31, 2018 based on higher generation forecast. In this scenario, the average base case non-cash finance service cover ratio is 1.31 times with a minimum level of 1.10 times in 2025. Sensitivity analysis demonstrates that the project coverage is most vulnerable in 2025 under scenarios where there are increases in heat rates and prolonged outages.

The plant's underperformance since achieving COD has underlined TNB Prai’s increasing reliance on its parent for both operational and financial support. In this regard, MARC continues to derive comfort from the availability of TNB’s rolling guarantee to cover shortfalls in TNB Northern Energy’s designated accounts up to a minimum amount equivalent to the upcoming principal and profit payments 28 days prior to the payment due date which should provide adequate time for the guarantee to be drawn.

Contacts:
Ati Affira Kholid, +603-2717 2941 / affira@marc.com.my;
David Lee, +603-2717 2955 / david@marc.com.my

 

Fwd: THE SECOND KUALA LUMPUR INTERNATIONAL SUKUK CONFERENCE: THE FUTURE OF SUKUK - EMBRACING THE FOURTH INDUSTRIAL REVOLUTION

P R E S S  A N N O U N C E M E N T

                                                                       

FOR IMMEDIATE RELEASE

 

 

THE SECOND KUALA LUMPUR INTERNATIONAL SUKUK CONFERENCE: THE FUTURE OF SUKUK - EMBRACING THE FOURTH INDUSTRIAL REVOLUTION

 

The potential and future of sukuk amid the changing capital markets landscape was the focus of the conference that was jointly organised by Amanie Group and Malaysian Rating Corporation Berhad (MARC) held at the Securities Commission from September 20 - 21, 2018.

 

The one-and-a-half-day conference saw local and foreign Shariah, legal and finance experts discuss and deliberate on a wide range of topics related to sukuk, from practical issues in structuring sukuk to the potential for applying blockchain technology to sukuk transactions.

 

The conference started with an opening address by Datuk Dr. Mohd Daud Bakar, Founder and Executive Chairman of Amanie Group, welcoming attendees. The keynote speech was given by YB Dato' Ir. Haji Amiruddin Hamzah, Deputy Finance Minister, Ministry of Finance Malaysia.

 

The first panel session, which was moderated by Datuk Dr. Mohd Daud Bakar, delved into the integration of environmental, social and governance (ESG) aspects in sukuk investment and sukuk's enormous potential in furthering environmental and social sustainability. The importance of credit ratings in the efficient functioning of the sukuk market was also underlined during a subsequent panel session moderated by MARC's Ahmad Feizal. The need for a strong disclosure regime augmented by independent credit ratings is further underscored by the Securities Commission Malaysia's recent announcement on the liberalisation of its regulatory framework to enhance retail participation in sukuk and bonds.

 

A special presentation on sukuk blockchaining, meanwhile, showed how blockchain technology may be harnessed to promote greater investor and issuer participation in sukuk. The conference wrapped up its first day's proceedings with a session discussing a high-profile sukuk default which highlighted the potentially dire consequences of differences in the interpretation of Shariah standards and emphasised on the need for a centralised Shariah framework. Self-regulation, while providing flexibility in the early phase of market development, can subsequently become an obstacle to further growth.

 

The sessions on the second day of the conference explored future approaches to structuring sukuk as well as the potential of Industry 4.0 technologies to revolutionise sukuk, going forward. Innovation has been integral in the growth of sukuk as witnessed in the continued evolution of sukuk structures amid the ongoing debate regarding asset-backed and asset-based sukuk. Optimism was voiced as to the capability of market players to innovate and introduce new assets and structures that will create tomorrow's opportunities for sukuk investors.

 

MARC's Chief Executive Officer, Sabrina Kan Wai Sum, delivered her closing remarks in which she summed up the key messages from the conference's six sessions. After stating that the sessions had generated a consensus view that growth prospects for the sukuk market remain tremendous, she further commented: "The challenge that remains is to overcome impediments to the global sukuk market's potential growth, in particular the uncertainties arising from legal regimes, differing Shariah interpretations and ambiguity with regard to investors' rights and remedies in default circumstances."

 

The conference was attended by numerous representatives from policy-makers, regulatory authorities, corporates, financial institutions, fund management firms, law firms and other stakeholders.

 

Contacts: Ahmad Feizal Sulaiman Khan, +603-2717 2911/ feizal@marc.com.my ; Jack Yap Ngee Heong, +603-2717 2915/ ngeeheong@marc.com.my

 

September 21, 2018

 

[This announcement is available in the MARC corporate homepage at http://www.marc.com.my]

© 2018 Malaysian Rating Corporation Berhad

 

 

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FW: RAM Ratings reaffirms Batu Kawan’s AA1 rating

 

Published on 24 Sep 2018.

RAM Ratings has reaffirmed the AA1/Stable rating of Batu Kawan Berhad's (Batu Kawan or the Group) RM500 million Islamic Medium-Term Notes Programme (2013/2023). 

The reaffirmation of the ratings is supported by Batu Kawan's ability to maintain its strong financial profile amid weaker crude palm oil (CPO) prices. The Group's financial performance and credit profile largely mirror those of its 47%-controlled subsidiary, Kuala Lumpur Kepong Berhad (KLK), which contributes more than 90% and 80% of the Group's revenue and operating profit before depreciation, interest and tax (OPBDIT), respectively. The Group's integrated plantation business is parked under KLK, the sukuk programmes of which are rated AA1/Stable by RAM.

In 9M FY Sep 2018, the much weaker performance of the Group's plantation segment was somewhat buffered by the better showing of its manufacturing segment, supported by a rebound in the oleochemicals business. Meanwhile, the industrial chemicals segment also recorded healthier profits amid higher selling prices. Nevertheless, the Group's revenue and pre-tax profit still declined about 10% y-o-y.

Despite its weaker revenue and profit, Batu Kawan's gearing and funds from operations (FFO) debt coverage ratios remained strong at a respective 0.38 and 0.35 times as at end-June 2018. If its substantial cash balances (including highly liquid money-market instruments) are taken into consideration, the Group's net gearing ratio would only come up to 0.22 times while its FFO net debt coverage would stand at a robust 0.61 times. Batu Kawan's debt level had declined to RM4.89 billion as at end-June 2018 (end-June 2017: RM5.35 billion), as the lighter working capital of its manufacturing segment had reduced the need for short-term financing. Under RAM's stressed CPO price assumptions, we expect Batu Kawan's gearing and FFO debt coverage ratios to be maintained at around 0.4 and 0.3 times, respectively, which remain commensurate with its ratings. 

Elsewhere, the rating continues to be underpinned by Batu Kawan's strong business profile. The Group, through KLK, remained among the 10 largest planters in the world, with integrated operations spread across Malaysia, Indonesia, Liberia, Europe and China. The Group's favourable tree maturity profile and fairly lean cost of production will continue to provide it with a sufficient buffer to weather industry downcycles. Apart from palm oil operations, Batu Kawan is also the leading chlor-alkali producer in Malaysia.

However, like most producers of commoditised products, the Group is susceptible to the volatility of commodity prices (i.e., CPO, chlor-alkali and sulphuric acid). The rating is also moderated by the challenging operating environment of the industrial chemical business as well as the palm oil refining and oleochemicals business, which have been plagued by persistent overcapacity and volatile feedstock costs. In addition, the tougher operating environment in Indonesia and added risks associated with the Group's venture in Liberia heighten its operational risk.

Analytical contact
Thong Mun Wai
(603) 7628 1022
munwai@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

 

 

FW: RAM Ratings reaffirms KLK’s global-scale and national-scale ratings

 

Published on 21 Sep 2018.

RAM Ratings has reaffirmed the global corporate credit ratings of Kuala Lumpur Kepong Berhad (KLK or the Group) at gA3/Stable/gP2. Concurrently, we have reaffirmed the ratings of its multi-currency IMTN programmes as follows:

Instrument	Rating Action	Rating
RM1.6 billion Multi-Currency IMTN Programme (2015/2027)	Reaffirmed	AA1/Stable
RM1.0 billion Multi-Currency IMTN Programme (2012/2022)	Reaffirmed	AA1/Stable

The reaffirmation of the ratings is supported by KLK's ability to maintain its strong financial profile despite lower crude palm oil (CPO) prices. In 9M FY Sep 2018, the much weaker performance of its plantation segment was somewhat buffered by the better showing of its manufacturing segment, supported by a rebound in the oleochemicals business. Nevertheless, KLK's revenue and operating profit before depreciation, interest and tax (OPBDIT) still declined 10% and 13% y-o-y, respectively.

Despite the lower revenue and profits, KLK's gearing and funds from operations (FFO) debt coverage ratios remained strong at a respective 0.36 and 0.35 times as at end-June 2018. If its substantial cash balances (including highly liquid money-market instruments) are taken into consideration, the Group's net gearing would only come up to a mere 0.21 times while its FFO net debt coverage would stand at a robust 0.59 times. At the same time, KLK's debt load eased to RM4.39 billion (end-June 2017: RM4.85 billion) as the lighter working capital of its manufacturing segment had reduced the need for short-term financing. Under RAM's stressed CPO price assumptions, we expect KLK's gearing and FFO debt coverage ratios to be maintained at around 0.4 times and 0.3 times, respectively, which remain commensurate with its ratings. 

KLK remained the third-largest plantation company locally and among the top 10 worldwide. Its integrated operations are spread across Malaysia, Indonesia, Liberia, Europe and China. The Group's favourable tree maturity profile and fairly lean cost of production will continue to provide it with a sufficient buffer to weather industry downcycles. 

The operating environment of the Group's enlarged mid- and downstream businesses, which continues to be plagued by persistent overcapacity and volatile feedstock costs, moderates the ratings. As with other planters, KLK is susceptible to the volatility of CPO prices. In addition, the tougher operating environment in Indonesia and added risks associated with the Group's venture in Liberia heighten its operational risk.

 

Analytical contact
Thong Mun Wai
(603) 7628 1022
munwai@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

 

 

FW: MARC AFFIRMS SOUTH KOREA’S SOVEREIGN RATING AT AAA

 

 

P R E S S  A N N O U N C E M E N T

 

FOR IMMEDIATE RELEASE

 

MARC AFFIRMS SOUTH KOREA'S SOVEREIGN RATING AT AAA

 

MARC has affirmed its public information foreign currency sovereign rating of AAA/stable on the Republic of Korea (South Korea), based on its national rating scale. The rating reflects South Korea's economic resilience, sound fiscal position and strong external position. Its rating strengths are, however, tempered by its rapidly ageing population and geopolitical risk stemming from North Korea. South Korea's stable outlook is based on expectations of continued pragmatic and effective policy-making, and that there is no sudden erosion of its considerable fiscal and external buffers. We are, nevertheless, cautious on the outlook because of the ongoing US-China trade spat and geopolitical risk stemming from the unpredictability of the North Korean regime.

 

The South Korean economy remains resilient to global shocks, thanks to strong macroeconomic fundamentals. Gross domestic product (GDP) growth in 2018 will likely come in at slightly below 3% because of elevated global trade tensions. The government's "income-led growth" strategy should support domestic demand. Going forward, economic potential should improve as the government implements supply-side policies to boost innovation.

 

A strong record of fiscal prudence has led to a sound fiscal position. Given the new administration's expansionary fiscal policy and welfare spending, South Korea's fiscal balance is expected to fall into a deficit of 1.7% of GDP in 2018. The government, a net creditor, has reserves equivalent to about 30% of GDP. As of end-3Q2017, government debt stood at a relatively low 36.7% of GDP.

 

Thanks to persistent current account surpluses, South Korea has built up a strong external position. Its foreign exchange reserves as of end-July 2018 stood at USD402.4 billion. With a net international investment position equivalent to 16.2% of GDP (end-2017), it is a net international creditor. It is not surprising then that capital flows have proven relatively resilient despite US monetary tightening and geopolitical tensions.

 

A rapidly ageing population continues to weigh on South Korea's sovereign credit rating. Over the 1997-2017 period, the proportion of those aged 65 or over more than doubled to 13.9% from 6.4%. The impact on economic growth, productivity and fiscal cost going forward is a credit concern. Meanwhile, inadequate social protection, which is creating poverty among the elderly, has affected consumption spending.

 

With the Korean Peninsula remaining in a technical state of war, and the US and North Korea at times engaging in "belligerent rhetoric," geopolitical tensions have never been far away. Against this backdrop, there is always the possibility of an unexpected event triggering a military confrontation. Even if that does not happen, rising tensions have the potential to negatively affect consumer and business sentiment, with implications for economic growth.

 

 

Contacts: Quah Boon Huat, +603-2717 2931/ boonhuat@marc.com.my; Nor Zahidi Alias, +603-2717 2936/ zahidi@marc.com.my

 

September 21, 2018

 

[This announcement is available in MARC's corporate homepage at http://www.marc.com.my]

----   DISCLAIMER    ----

This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

 

© 2018 Malaysian Rating Corporation Berhad

 

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FW: RAM Ratings reaffirms AAA(fg) rating of guaranteed sukuk issued by MRCB’s subsidiary, Puncak Wangi

 

Published on 18 Sep 2018.

RAM Ratings has reaffirmed the AAA(fg)/stable rating of Puncak Wangi Sdn Bhd's (the Company) Guaranteed IMTN Programme of up to RM200 million (2014/2022). The enhanced rating reflects an irrevocable and unconditional guarantee extended by Danajamin Nasional Berhad (rated AAA/stable/P1 by RAM), which enhances the credit standing of the IMTN beyond Puncak Wangi's stand-alone credit strength. Puncak Wangi, a property investment company wholly owned by Malaysian Resources Corporation Berhad (MRCB or the Group), has signed a contract with Celcom Axiata Berhad (Celcom) to build and lease to Celcom an office tower (Office Tower or the Project) as its principal office.

To date, Puncak Wangi has yet to deliver the Office Tower, given that the revised timeline for the completion of Interior Design (ID) works on September 2018, due to re-appointment of a new ID contractor by Celcom. The overall base building had been fully completed in January 2018 while the progress of ID works was at 50% as at end-June 2018 – on track based on the revised timeline. With minimal residual construction risk, we do not expect the completion of ID works to deviate much from the targeted September 2018, as 95% of the ID has been finalised with Celcom. Currently, the Company is negotiating a supplemental Agreement to Build and Lease (ATBL) with Celcom, which is anticipated to be signed by the end of the year.

Puncak Wangi is highly leveraged, with the bulk of the Office Tower's development cost being funded by the IMTN and bank loans. Puncak Wangi's debt stood at RM328.63 million as at end-December 2017 and is expected to peak at RM420 million as the Company fully draws down its debt facilities to fund remaining construction costs as well as the repayment of its debt obligations. 

Puncak Wangi is highly dependent on the disposal of the Office Tower or refinancing to meet bullet repayments on the principal of its IMTN and term loans. In view of the long-term lease with Celcom upon the Project's completion, and MRCB's intention to inject its investment properties into the Group's REIT, the likelihood of the Office Tower's disposal to the REIT is deemed high. In this regard, we highlight that any delay in the disposal will result in the IMTN maturing in November 2019 to be rolled over. 

In the meantime, the Company's stand-alone profile is supported by stable rental income from Celcom for a period of 15 years subsequent to the Project's completion, with the option to extend the lease for two three-year terms. In the event that Celcom terminates the lease agreement before expiry, it would still have to settle all obligations for the remaining tenure of the lease. 

The Office Tower is strategically located within the prime commercial hub of Petaling Jaya and enjoys good visibility from Federal Highway Route II – the main thoroughfare of the Klang Valley. Puncak Wangi derives support from its parent, MRCB, in the form of irrevocable and unconditional guarantees to Danajamin to meet any cost overruns and working-capital needs in relation to the Project. Further, the Group is the main contractor for the Project and handles the day-to-day management of the Company.

 

Analytical contact
Karin Koh, CFA
(603) 7628 1174
karin@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my