MARC has assigned preliminary ratings of MARC-1IS/AA-IS
to UEM Edgenta Berhad’s (UEM Edgenta) Islamic Commercial Papers (ICP)
and Islamic Medium-Term Notes (IMTN) under its Sukuk Murabahah Programme (Sukuk
Murabahah) of up to RM1.0 billion. The outlook on the ratings is stable.
UEM Edgenta’s long-term ratings are underpinned by MARC’s assessment of
parental support from UEM Group Berhad. The rating agency considers UEM Edgenta
as a strategic subsidiary of its parent based on its operations in key business
segments within the group.
UEM Edgenta is an investment holding company with
three main business segments: infrastructure services, integrated facilities
management (IFM) and asset consultancy. The assigned ratings incorporate UEM
Edgenta’s strong competitive position and long operating track record in the
concession-based highway infrastructure maintenance and hospital support
services, both of which provide stable earnings streams. The ratings are,
however, moderated by UEM Edgenta’s increased leverage position and challenging
prospects for its asset consultancy services that are related to the oil &
gas and resource industries in Canada and Australia.
MARC observes that the
acquisitions of the Singapore-based Asia Integrated Facility Solutions Pte Ltd
(AIFS) and KFM Holdings Sdn Bhd in 2016 have elevated UEM Edgenta’s
consolidated leverage to 0.64 times (2015: 0.24 times). While the acquisitions
are part of UEM Edgenta’s expansion programme to strengthen its key businesses,
MARC notes that the group has limited headroom for further debt-funded
acquisitions without impacting its credit metrics.
UEM Edgenta, through its subsidiary Edgenta Mediserve
Sdn Bhd (Edgenta Mediserve), has a 10-year concession agreement ending in 2025,
under which the company provides hospital support services to 32 government
hospitals in northern Peninsular Malaysia. MARC assess Edgenta Mediserve’s
exposure to concession termination and renewal risks as low given its
well-established track record in providing support services to government
hospitals. The group also holds 40% joint venture stakes in each of the two
entities undertaking hospital support services in Sabah and Sarawak following
the cessation of its services in East Malaysia.
The acquisition of 100% equity interest in AIFS, which
wholly owns UEMS Pte Ltd (UEMS), a provider of facilities management services
to the healthcare sector in about 90 hospitals and healthcare institutions in
Singapore, Taiwan and Malaysia, will broaden UEM Edgenta’s geographical reach
in the IFM segment. UEMS has an operating track record of over 25 years with
moderate earnings growth and low borrowing levels; nonetheless, UEMS’ contracts
are short-term in nature, and therefore susceptible to renewal risk.
Its highway maintenance operation is undertaken by
Edgenta PROPEL Berhad (Edgenta PROPEL), which has a major contract until 2038
under a master maintenance agreement with related company Projek Lebuhraya
Usahasama Berhad (PLUS), the owner of a portfolio of toll road concessions in
Peninsular Malaysia. MARC views the payment risk from PLUS as minimal given its
very strong capacity to meet its contracted obligations. Edgenta
PROPEL undertakes routine maintenance works for several other highways and has
secured several new contracts, including Selangor Zone III state road
maintenance, Cikampek-Palimanan toll road in Jakarta, and Lebuhraya Pantai
Timur 2 Sdn Bhd’s 184 km East Coast Expressways.
The group’s non-concession operations, mainly asset
management and consultancy, are largely undertaken by subsidiary Opus Group
Berhad (Opus) through its 61%-owned New Zealand-based Opus International
Consultants Limited (Opus NZ). The company’s performance was dragged down by
sizeable impairment charges in 2016 arising from consultancy services to the mining
and oil and gas sectors in Canada and Australia respectively.
For 2016, UEM Edgenta recorded
lower consolidated revenue and earnings of RM2.9 billion and RM113.8 million
(2015: RM3.1 billion; RM305.4 million) partly due to cessation of hospital
support services operations in East Malaysia and losses incurred by the
Canadian and Australian subsidiaries. MARC
understands that UEM Edgenta will undertake an initial issuance of RM300
million under the sukuk programme, of which RM60.6 million will be used to
refinance existing borrowings. The drawdown is expected to increase the group’s
leverage ratio to about 0.80 times. At the holding company level, UEM Edgenta
is reliant on dividend income mainly from Edgenta PROPEL, Edgenta Mediserve and
Opus to meet its financial obligations. Concession revenue-supported dividends
upstreamed by its infrastructure maintenance and hospital support businesses
are expected to provide above 2.0 times coverage of the holding company’s
interest obligations.
The stable outlook incorporates MARC’s expectations
that UEM Edgenta would maintain credit metrics that are commensurate with the
current rating band. However, further increases in leverage and/or weakening
earnings prospects in the non-concession business could result in downward
rating pressure. Upward rating migration is conditional upon improvement in the
group’s overall business risk profile and/or its key financial metrics.
Contacts: Cheah Wan Kin, +603-2082 2232/ wankin@marc.com.my; Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my
March 15, 2017
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.