RAM Ratings has reaffirmed the respective AA1/Stable ratings of YTL Corporation Berhad’s (YTL Corp or the Group) RM500 million MTN Programme (2004/2019) and RM2 billion MTN Programme (2013/2038). While YTL Corp registered softer earnings owing to stiffer competition faced by its Singaporean power and local cement divisions, RAM places greater emphasis on the Group’s company-level credit

Published on 17 Feb 2017.

RAM Ratings has reaffirmed the respective AA1/Stable ratings of YTL Corporation Berhad’s (YTL Corp or the Group) RM500 million MTN Programme (2004/2019) and RM2 billion MTN Programme (2013/2038). While YTL Corp registered softer earnings owing to stiffer competition faced by its Singaporean power and local cement divisions, RAM places greater emphasis on the Group’s company-level credit metrics, which held up within our expectations in FY Jun 2016. Atypical of other corporates, the bulk of debts of YTL Corp’s operating entities is concession- or REIT-related and non-recourse to the holding company, hence the adoption of this approach. 

The ratings reflect YTL Corp’s strong business profile, backed by its diversified earnings base as a conglomerate. Steady contributions from YTL Corp’s water and sewerage business as well as stable and predictable income from its real-estate investments trusts (REITs) alleviate the earnings downside stemming from the competitive industry landscape in which the Group’s Singaporean power and local cement divisions. The ratings also take into account substantial unencumbered cash residing at YTL Power International Berhad’s (YTL Power) intermediary companies which can be readily repatriated to YTL Corp as and when needed to service company-level debts. Hence a combined debt coverage ratio is used to assess YTL Corp’s debt-servicing ability. This ratio reflects the ability of YTL Corp and YTL Power to repatriate dividends from their subsidiaries to meet company-level debts.

In FY Jun 2016, YTL Corp’s core businesses maintained their strong operating track records, with the water and sewerage division outperforming regulatory benchmarks, and power plants under YTL Power preserving high availability levels. The high capacity utilisation of YTL Corp’s cement plants and healthy take-up rates of its property developments are also evidence of the commendable execution of the Group’s business divisions. However, YTL PowerSeraya Pte Ltd’s (PowerSeraya) performance has deteriorated due to excess generating capacity in the Singaporean power market given the entrance of new players. Over the past 5 years, installed capacity has risen over 30%. This gave rise to an excessive reserve margin of 94.0% as at end-March 2016, resulting in a downward trend in PowerSeraya’s generation market share.

YTL Corp boasts a superior liquidity position, with a sturdy RM13.75 billion cash pile against RM5.18 billion of short-term debts as at end-June 2016. The bulk of the cash resides with YTL Power, which reported higher unencumbered cash reserves of RM8.65 billion as at the same date (end-June 2015: RM8.61 billion). We derive substantial comfort from YTL Corp’s ability to tap its subsidiaries for dividends given the Group’s centralised treasury function. 

YTL Corp’s balance sheet remained constrained by a high debt level. Over the next 5 years, the Group’s debt load is expected to increase to fund the construction of its Indonesian power plant (project cost of US$2.7 billion) and the equity contribution of the Group’s power plant in Jordan¹ (US$284 million). Notwithstanding the additional debts to be raised, we expect YTL Corp’s combined company-level debt coverage metrics to remain healthy over the next 5 years.

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¹ YTL Power owns a 30% stake in the Jordanian project and has entered into agreements to increase its stake to 45%, expected to take place upon financial close.

Analytical contact
Chin Wynn, CFA
(603) 7628 1170
chinwynn@ram.com.my

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