Posted
Date: August 6, 2015
The ratings outlook is maintained at stable. The affirmed
ratings are underpinned by the credit strength of the unconditional and
irrevocable guarantees from Maybank Islamic Berhad (Maybank Islamic) (Tranche
1) and from Danajamin Nasional Berhad (Danajamin) (Tranche 2). MARC currently
maintains a financial institution rating of AAA/stable on Maybank Islamic and
an insurer financial strength rating of AAA/stable on Danajamin.
Ranhill Group is mainly involved in two key segments: power generation through its 60%-owned Ranhill Powertron Sdn Bhd (RPI) and 80%-owned Ranhill Powertron II Sdn Bhd (RPII) in Sabah; and water treatment and distribution through its 80%-owned SAJ Holdings Sdn Bhd (SAJH) in Johor. Dividend payments from the three subsidiaries remain key to Ranhill Group meeting its financial obligations under the rated Sukuk Musharakah facilities. The rating agency has observed that until recently, SAJH was the main dividend provider to Ranhill Group given that over the intermediate term both RPI and RPII would need to meet their fairly large project finance debt obligations before dividends can be distributed. However, in 2014, RPII upstreamed its first dividend payout of RM61.9 million to Ranhill Group, exceeding SAJH’s RM44.3 million for the year (2013: RM84.1 million).
RPII’s sizeable dividend distribution in 2014 was from cash balances built-up in recent years in line with the improved performance of its 190MW combined-cycle gas turbine (CCGT) plant. This is expected to decline to about RM13.0 million in 2015, in anticipation of higher maintenance expenses and debt obligations. Currently, RPI and RPII have outstanding debts of RM220.0 million and RM650.0 million respectively. MARC notes that the strong operating performances of RPI and RPII have led to an improved cash flow generation of RM98.1 million and RM192.0 million respectively in 2014. RPI, through its 190MW CCGT, and RPII generate 23.5% of Sabah’s installed generation capacity under 21-year power purchase agreements with offtaker Sabah Electricity Sdn Bhd (SESB), which expire in 2029 and 2032 respectively. The long-term agreements insulate demand risk while offtaker risk is mitigated by the credit strength of SESB, an 83%-held subsidiary of Tenaga Nasional Berhad.
The improved cash flow generation of RPI and RPII notwithstanding, MARC continues to view Ranhill Group’s ability to meet its sukuk obligations to be mainly derived from debt-free SAJH’s predictable earnings stream, premised on a regulated water tariff structure. SAJH is the sole water distributor in Johor and operates under a three-year operating licence from the government. Its exposure to regulatory and licence renewal risks are moderated by a strong operating track record and its ability to meet key performance indicators as specified under the current operating licence which expires at end-2017. In line with the higher water consumption in Johor, SAJH registered a 6.4% year-on-year (y-o-y) increase in revenue to RM875.8 million in 2014 but its operating profit declined marginally by 1.3% y-o-y to RM114.1 million. Cash flow from operations (CFO) was lower at RM396.3 million (FY2013: RM419.8 million) on increase in receivables from the immediate holding company; however the cash balance was higher at RM184.4 million as at end-FY2014 (end-FY2013: RM91.1 million) due to low dividends distribution made during the year.
For the unaudited FY2014, revenue at the Ranhill Group holding company level, which comprised mainly of dividends from subsidiaries, increased by 29.7% y-o-y to RM113.6 million (FY2013: RM87.6 million). The adjusted cash from operations (CFO) stood at RM56.3 million while cash and bank balances rose to RM46.2 million in FY2013 (FY2013: RM79.6 million; RM33.5 million). MARC estimates the cash buildup to be on track to meet the next repayment of RM60.0 million under Tranche 1 of the rated sukuk facilities due on June 2, 2016. Meanwhile the rating agency notes that following approval from the Securities Commission on July 15, 2015 on the group’s proposed reverse take-over (RTO) exercise, the group’s leverage position is likely to improve going forward. The RTO of Bursa Malaysia-listed Symphony House Berhad will result in the injection of Ranhill Group’s power and water subsidiaries into a new investment holding company, Ranhill Holdings Berhad (Ranhill Holdings) and the transfer of the rated sukuk facilities to a special purpose vehicle to be held under Ranhill Holdings. Through a listing of new shares, Ranhill Holdings intends to raise up to RM600.0 million to partly pare down the group’s borrowings.
Sukukholders are, however, insulated from any downside risks related to the credit profile of Ranhill Group by guarantees provided by Maybank Islamic 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:
Saifuruddin Othman, +603-2082 2245/ saifuruddin@marc.com.my;
Jasmine Kua, +603-2082 2280/ jasmine@marc.com.my;
Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my.
Ranhill Group is mainly involved in two key segments: power generation through its 60%-owned Ranhill Powertron Sdn Bhd (RPI) and 80%-owned Ranhill Powertron II Sdn Bhd (RPII) in Sabah; and water treatment and distribution through its 80%-owned SAJ Holdings Sdn Bhd (SAJH) in Johor. Dividend payments from the three subsidiaries remain key to Ranhill Group meeting its financial obligations under the rated Sukuk Musharakah facilities. The rating agency has observed that until recently, SAJH was the main dividend provider to Ranhill Group given that over the intermediate term both RPI and RPII would need to meet their fairly large project finance debt obligations before dividends can be distributed. However, in 2014, RPII upstreamed its first dividend payout of RM61.9 million to Ranhill Group, exceeding SAJH’s RM44.3 million for the year (2013: RM84.1 million).
RPII’s sizeable dividend distribution in 2014 was from cash balances built-up in recent years in line with the improved performance of its 190MW combined-cycle gas turbine (CCGT) plant. This is expected to decline to about RM13.0 million in 2015, in anticipation of higher maintenance expenses and debt obligations. Currently, RPI and RPII have outstanding debts of RM220.0 million and RM650.0 million respectively. MARC notes that the strong operating performances of RPI and RPII have led to an improved cash flow generation of RM98.1 million and RM192.0 million respectively in 2014. RPI, through its 190MW CCGT, and RPII generate 23.5% of Sabah’s installed generation capacity under 21-year power purchase agreements with offtaker Sabah Electricity Sdn Bhd (SESB), which expire in 2029 and 2032 respectively. The long-term agreements insulate demand risk while offtaker risk is mitigated by the credit strength of SESB, an 83%-held subsidiary of Tenaga Nasional Berhad.
The improved cash flow generation of RPI and RPII notwithstanding, MARC continues to view Ranhill Group’s ability to meet its sukuk obligations to be mainly derived from debt-free SAJH’s predictable earnings stream, premised on a regulated water tariff structure. SAJH is the sole water distributor in Johor and operates under a three-year operating licence from the government. Its exposure to regulatory and licence renewal risks are moderated by a strong operating track record and its ability to meet key performance indicators as specified under the current operating licence which expires at end-2017. In line with the higher water consumption in Johor, SAJH registered a 6.4% year-on-year (y-o-y) increase in revenue to RM875.8 million in 2014 but its operating profit declined marginally by 1.3% y-o-y to RM114.1 million. Cash flow from operations (CFO) was lower at RM396.3 million (FY2013: RM419.8 million) on increase in receivables from the immediate holding company; however the cash balance was higher at RM184.4 million as at end-FY2014 (end-FY2013: RM91.1 million) due to low dividends distribution made during the year.
For the unaudited FY2014, revenue at the Ranhill Group holding company level, which comprised mainly of dividends from subsidiaries, increased by 29.7% y-o-y to RM113.6 million (FY2013: RM87.6 million). The adjusted cash from operations (CFO) stood at RM56.3 million while cash and bank balances rose to RM46.2 million in FY2013 (FY2013: RM79.6 million; RM33.5 million). MARC estimates the cash buildup to be on track to meet the next repayment of RM60.0 million under Tranche 1 of the rated sukuk facilities due on June 2, 2016. Meanwhile the rating agency notes that following approval from the Securities Commission on July 15, 2015 on the group’s proposed reverse take-over (RTO) exercise, the group’s leverage position is likely to improve going forward. The RTO of Bursa Malaysia-listed Symphony House Berhad will result in the injection of Ranhill Group’s power and water subsidiaries into a new investment holding company, Ranhill Holdings Berhad (Ranhill Holdings) and the transfer of the rated sukuk facilities to a special purpose vehicle to be held under Ranhill Holdings. Through a listing of new shares, Ranhill Holdings intends to raise up to RM600.0 million to partly pare down the group’s borrowings.
Sukukholders are, however, insulated from any downside risks related to the credit profile of Ranhill Group by guarantees provided by Maybank Islamic 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:
Saifuruddin Othman, +603-2082 2245/ saifuruddin@marc.com.my;
Jasmine Kua, +603-2082 2280/ jasmine@marc.com.my;
Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my.
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