RAM Ratings has reaffirmed the AAA(s)/stable ratings of Rantau Abang Capital Berhad’s RM7.0 billion Islamic MTN Programme and Danga Capital Berhad’s RM20.0 billion Multi-currency Islamic Securities Programme. Rantau Abang Capital and Danga Capital, funding conduits of Khazanah Nasional Berhad (the Company or Khazanah), had been incorporated for the sole purpose of facilitating the issuance of the Islamic securities.

Published on 06 October 2016

RAM Ratings has reaffirmed the AAA(s)/stable ratings of Rantau Abang Capital Berhad’s RM7.0 billion Islamic MTN Programme and Danga Capital Berhad’s RM20.0 billion Multi-currency Islamic Securities Programme. Rantau Abang Capital and Danga Capital, funding conduits of Khazanah Nasional Berhad (the Company or Khazanah), had been incorporated for the sole purpose of facilitating the issuance of the Islamic securities.

The ratings reflect the credit strength of Khazanah, as the ultimate obligor servicing the profit and principal payments under these transactions. Although profitability and debt-coverage indicators have weakened, RAM continues to view Khazanah as an extension of the Government of Malaysia (GoM); we therefore equate the Company’s rating to that of the GoM. The reaffirmation of Khazanah’s rating also reflects its increasingly diversified investment portfolio and superior financial flexibility.

During the period under review, Khazanah’s investment portfolio in terms of realisable asset value (RAV) appreciated at a slower rate of 3.2% (fiscal 2014: 7.7%) to RM150.2 billion. In fiscal 2015, Khazanah’s dividend income ebbed to RM2.41 billion (fiscal 2014: RM5.18 billion), in the absence of special dividends from Valuecap and one-off divestment gains, in addition to lower contributions from its investee companies. Khazanah’s profitability, which saw its profit before tax halved y-o-y to RM0.5 billion, was also crimped by higher finance costs, foreign-exchange losses, and further investment write-offs. However, these were partially moderated by a stronger gain from divestments of RM2.45 billion (fiscal 2014: 0.52 billion).

Moving forward, Khazanah’s profitability and balance sheet may continue to be weighed down amid the still-challenging operating environment, which limits the upside potential of dividend receipts. Khazanah may also need to provide ongoing support for weaker subsidiaries or investee companies, as well as pay additional special dividends to the GoM (on account of persistently weak oil prices). That said, the Company’s portfolio remains fairly well diversified by sector and geographical exposure, which serves to mitigate economic headwinds. To enhance its portfolio returns, Khazanah has increasingly added exposure to innovation and technology investments. However, we opine that such start-ups and unlisted ventures are typically associated with lengthy gestation periods and higher risks. The Company will need to exercise financial discipline in maintaining divestment gains, in order to supplement its dividend receipts.

As at end-December 2015, Khazanah’s debt level rose to RM39.9 billion, pushing its gearing and net gearing ratios up to a respective 1.46 and 1.40 times (end-December 2014: 1.28 and 1.23 times). Coupled with its weaker profit performance and higher average cost of funding, its interest cover and OPBDIT debt cover thinned to a respective 2.44 and 0.11 times (fiscal 2014: 3.87 and 0.14 times). While the Company traditionally enjoys easy access to the debt capital market, the persistently volatile global financial landscape may render its funding options more uncertain and influence the valuation and timing of its divestments. Nevertheless, Khazanah’s portfolio has been able to consistently and substantially cover its liabilities; its RAV to liabilities ratio stood at 3.1 times as at end-December 2015 (end-December 2014: 3.7 times).

Analytical contact                                        Media contact
Daniel Wong, CFA                                         Padthma Subbiah
(603) 7628 1172                                            (603) 7628 1162
danielwong@ram.com.my                             padthma@ram.com.my