MARC has affirmed its AAAIS(bg) and AAAIS(fg) ratings on Ranhill Group Sdn Bhd’s (Ranhill Group, formerly known as Ranhill Power Sdn Bhd) RM300 million bank-guaranteed (Tranche 1) and RM500 million Danajamin-guaranteed (Tranche 2) Sukuk Musharakah facilities respectively.

Jul 9, 2014 -
MARC has affirmed its AAAIS(bg) and AAAIS(fg) ratings on Ranhill Group Sdn Bhd’s (Ranhill Group, formerly known as Ranhill Power Sdn Bhd) RM300 million bank-guaranteed (Tranche 1) and RM500 million Danajamin-guaranteed (Tranche 2) Sukuk Musharakah facilities respectively. The outlook for the ratings is stable.
The rating on the Tranche 1 sukuk reflects the credit strength of an unconditional and irrevocable guarantee provided by Maybank Islamic Berhad, which carries a MARC rating of AAA/stable. The rating on the Tranche 2 sukuk reflects the credit strength of an unconditional and irrevocable Kafalah Guarantee provided by Danajamin Berhad (Danajamin), on which MARC currently maintains an insurer financial strength rating of AAA/stable. The standalone credit profile of Ranhill Group, the investment holding company, is dependent on key subsidiaries SAJ Holdings Sdn Bhd (SAJH), a water service provider in the state of Johor, and Ranhill Powertron Sdn Bhd (RPI) and Ranhill Powertron II Sdn Bhd (RPII), both of which are involved in independent power generation in the state of Sabah.
MARC notes that SAJH has a predictable earnings stream given the regulated water tariff structure, the company’s position as the sole water distributor in Johor and its debt-free status. The 80%-held SAJH continues to be the main, and often sole, dividend contributor to its parent. Historically, dividend income from SAJH has been sufficient to meet the Ranhill Group’s financial obligations under the rated sukuk. Nonetheless, SAJH, which operates under a three-year operating licence from the government, is exposed to regulatory and licence renewal risk. MARC views that renewal risk for SAJH’s operating licence which expires at end-2014 is moderated by the water service provider’s good operating track record and its ability to fulfil the key performance indicators as specified under the licence. 

MARC observes RPI and RPII, which have a combined generating capacity of 380MW, or about 28.8% of Sabah’s total installed capacity, continue to benefit from the 21-year power purchasing agreements (PPA) with offtaker Sabah Electricity Sdn Bhd (SESB), an 80%-held subsidiary of Tenaga Nasional Bhd (TNB), that expire in 2029 and 2032 respectively. The credit strength of TNB mitigates offtaker risk while the PPAs insulate Ranhill Group’s power generating subsidiaries from demand risk. MARC notes that RPI and RPII would need to comply with their respective debt covenants on their fairly large borrowings before dividends can be declared. RPII has upstreamed its first dividend amounting to RM56.0 million for 1QFY2014.
In FY2013, the performance of both RPI and RPII were affected slightly by unplanned outages which have since been rectified. For unaudited FY2013, revenue at the Ranhill Group holding company level, which comprised mainly of dividends from subsidiaries, increased to RM75.1 million (FY2012: RM12.9 million) largely due to an increase in dividend flow from SAJH following the completion of an internal reorganisation exercise through which Ranhill Group increased its interest in SAJH to 80%. The recognition of dividend income from SAJH also boosted the holding company’s cash flows: adjusted cash from operations (CFO) increased to RM78.5 million while cash and bank balances rose to RM33.5 million in FY2013 (FY2012: RM10.0 million; RM28.3 million). MARC notes that the company has made the scheduled repayment of RM10.0 million under the sukuk programme in June 2, 2014. The next repayment of RM25.0 million is due on June 2, 2015.
Following the completion of a group-wide restructuring exercise, Ranhill Group’s ultimate shareholder Ranhill Energy and Resources Berhad is undertaking a reverse take-over of Bursa Malaysia-listed Symphony House Berhad as an alternative route for a listing in Bursa Malaysia. The reverse take-over could include the divestment of Ranhill Group’s power and water subsidiaries as well as the transfer of the rated sukuk to a special purpose company to be incorporated under a new investment holding company, Ranhill Holdings Sdn Bhd. The rating agency will assess the credit implications, if any, upon the completion of the corporate exercise.
Sukukholders are, however, insulated from any downside risks related to the credit profile of Ranhill Group by the guarantees provided by Maybank Islamic Berhad and Danajamin. Any change in the supported ratings or rating outlook would be primarily driven by changes in the credit strength of the guarantors.
Contacts:
Jasmine Kua, +603-2082 2280/ jasmine@marc.com.my;
Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my.