Published on 24 June 2014
RAM Ratings has reaffirmed the corporate credit ratings of
Al Bayan Holding Company (Al Bayan or the Group) at AA3/Stable/P1.
Concurrently, the AA3(s)/Stable rating of the RM1.0 billion Sukuk Wakalah
(2013/2023) issued by the Group’s wholly-owned subsidiary, ABHC Sukuk Berhad
(ABHC), has been reaffirmed. ABHC is a special-purpose vehicle incorporated in
Malaysia to facilitate the sukuk transaction by Al Bayan, a Saudi-based
conglomerate. Under a Kafalah agreement in favour of ABHC, the Group provides
an irrevocable and unconditional guarantee to the holders of the sukuk. As
such, the enhanced rating is based on Al Bayan’s credit profile.
The ratings reflect Al Bayan’s solid track record in
securing and delivering on large government contracts for equipment supply and
ICT, including important turnkey projects for the defence, health, interior and
education ministries. The Group’s track record has helped it build up and
sustain a large order book (totalling RM3.1 billion as at end-December 2013) in
its relatively new specialist construction operations. This business had grown
rapidly to become Al Bayan’s largest division.
The ratings are also supported by Al Bayan’s strong debt
coverage. Its funds from operations (FFO) debt cover remained robust at 0.28
times as at end-December 2013, despite borrowings doubling in 2 years to
SR1,240.66 million. Moving forward, we expect the Group’s earnings to continue
to grow along with its hefty debt. As such, its FFO debt cover is anticipated
to remain strong at about 0.30 to 0.35 times over the next 2 years.
Nonetheless, we view Al Bayan’s balance sheet strength as
moderate due to its considerable debt load, which translated into a gearing
ratio of 0.97 times as at end-December 2013. We understand the shareholders are
in the midst of injecting additional equity into the Group in the form of
real-estate properties, which will trim its gearing. Looking ahead, based on
current project progress and the number of contracts secured, we do not expect
Al Bayan’s gearing to exceed 0.8 times within the next 2 years. However, if the
Group were to secure substantially more contracts and/or achieve significantly
faster progression in its projects, its gearing and debt coverage metrics may
deteriorate.
The rating is also moderated by the heightened execution
risk faced by Al Bayan due to the rapid expansion of its specialist
construction segment. We remain cautious over the Group’s rapid expansions as
it may require more time to familiarise itself with the risks in managing and
delivering concurrent large projects. We note that Al Bayan is limiting its
exposure to execution risks by partnering with international industry experts
in relevant segments of specialist construction. Meanwhile, as the bulk of the
Group’s earnings are contract driven, it has to constantly bid for new
contracts to replenish its order book.
On a macro perspective, we view positively strong
government-led developments in Saudi Arabia to diversify its oil-based economic
structure and address high unemployment rates. Nonetheless, the Kingdom’s
location within a region of frequent conflicts and an evolving socio-political
environment is a threat to its overall stability, although it has largely
avoided financial, social and political unrest relative to its neighbouring countries
in recent years.
Al Bayan is a conglomerate with businesses mainly in the
specialist construction of public infrastructure, supply of a wide range of
equipment and IT products and services, and the provision of communication
networks, primarily servicing the Government of Saudi Arabia.
Media contact
Ben Inn
(603) 7628 1024
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