MARC AFFIRMS ITS RATINGS ON ABS LOGISTICS BERHAD’S RM160 MILLION ASSET-BACKED SENIOR SUKUK IJARAH; OUTLOOK REVISED TO NEGATIVE

Feb 27, 2012 -

MARC has affirmed the ratings of ABS Logistics Berhad’s (ALB) Senior Sukuk comprising RM100 million of Class A, RM20 million of Class B and RM40 million of Class C Sukuk at AAAIS, AAIS and AAAIS(bg) respectively. The outlook on the ratings for the Class A and B Sukuk has been revised to negative from stable. The revision in outlook reflects increasing concerns over the credit profile of the transaction’s originator and lessee, Tiong Nam Logistics Berhad, due to its weakening financial performance in a highly competitive business environment. The negative outlook affects RM140 million outstanding under the sukuk. The ratings of the Class A and Class B Sukuk reflect satisfactory loan-to-value (LTV) ratios for the sukuk, strong debt service coverage levels, and the stable performance of the collateral properties. Meanwhile, the enhanced rating of the Class C Sukuk is based on the unconditional and irrevocable guarantee from Malayan Banking Berhad on which MARC maintains a financial institution rating of AAA/stable based on public information.

ALB is a bankruptcy remote special purpose vehicle incorporated to facilitate the issuance of the sukuk and the sale and leaseback of industrial warehouses (the collateral pool) by Tiong Nam Logistics Holdings Berhad (Tiong Nam) and its subsidiaries. The monthly lease or ijarah payments form the source of profit payments on the rated Sukuk and principal repayment of the amortising Class A Sukuk. The collateral pool comprises 22 industrial warehouses acquired from Tiong Nam and its subsidiaries and leased back to Tiong Nam Logistics Solutions Sdn Bhd, a wholly-owned subsidiary of Tiong Nam, for a period of up to 10 years. Located in established industrial areas across seven states in Peninsular Malaysia, the warehouses were last valued in April 2011 at RM178.5 million collectively.

As of March 31, 2011, the collateral pool showed a healthy collective occupancy rate of 93.8% and continues to be supported by a stable base of major tenants involved in manufacturing-based and logistics- and transportation-based industries. MARC notes that a substantial number of these tenants have been customers of Tiong Nam for over 10 years, reflecting the captive linkages of Tiong Nam’s warehousing and transportation services. This, and the prime locations and quality of the collateral properties continues to mitigate lease renewal risks with respect to the leases, which are generally short-termed in nature – the average tenure of leases in the collateral pool is currently 1.39 years. At the same time, the highly concentrated tenant profiles of the collateral properties render the pool performance more susceptible to non-renewal of leases by major tenants and adverse changes in the creditworthiness of these tenants. The collateral pool’s five largest tenants now account for over 55.9% of annual gross rental revenue and a substantial number of its tenants are exposed to manufacturing-based industries, particularly the electronics and electrical sector.

During the period under review (April 2010 to March 2011), the collateral pool showed a healthy net operating income (NOI) of RM16.0 million and was able to comfortably meet all required ijarah payments of RM14.4 million in total with a gross revenue. Based on existing leases held and an average monthly rental rate of RM1.35 per sq ft, MARC expects the collateral pool to generate an NOI of RM16.0 million in the next year, against the assumed sustainable NOI of RM14.5 million. In the same period, ALB had successfully redeemed RM5.0 million of Class A sukuk on May 8, 2011, leaving the outstanding amount at RM80.0 million. As such, the respective loan-to-values (LTV) for the Class A and Class B Sukuk are 55.4% and 69.2% based on MARC’s maintained discounted cash flow valuation of the collateral pool of RM144.5 million; however, projected LTVs at maturity for the sukuk remains unchanged at 27.7% and 41.5%. MARC’s computed debt service coverage ratios (DSCR) for the Class A and Class B Sukuk, respectively of 3.61 and 3.31 times, remain within the rating requirements for the rating levels.

Tiong Nam’s recent operating performance has been notably affected by increases in fuel, rental and labour costs, despite an uptrend in its revenue. The group’s profit after tax of RM28.8 million for FY2011 was primarily contributed by increases in fair values (almost RM31.2 million) of its investment properties as opposed to revenue from logistics services and warehousing income. The group posted negative cash flow from operations (CFO) of RM11.9 million compared to a positive CFO of almost RM23.0 million in the previous year. Tiong Nam’s debt-to-equity (DE) ratio was maintained below 1.0 time at 0.61 times, despite an increase in total borrowings during FY2011, due in part to gains taken to revaluation reserves.

For the period ended September 30, 2011 (1HFY2012), Tiong Nam’s financial performance remained depressed as reflected by a pre-tax loss of RM4.5 million for the six-month period. In the same period, the group recorded an operating cash flow deficit of RM3.3 million. In addition, its DE ratio rose to 0.80 times due to additional borrowings. MARC understands that the group is in the process of raising its freight rates to counter the increase in costs.

Further negative rating pressure could develop with respect to the ratings of Class A and Class B sukuk if Tiong Nam’s credit profile becomes further stressed. Rating sensitivity of Class A and Class B sukuk is currently limited by the still favourable performance of the collateral properties.

Contacts:
Ruben Khoo Sheng Luen, +603-2082 2265/ rubenkhoo@marc.com.my ;
Sandeep Bhattacharya, +603-2082 2247/ sandeep@marc.com.my .

MARC AFFIRMS ITS MARC-1(fg)/AAA(fg) RATINGS ON MRCB SENTRAL PROPERTIES SDN BHD'S RM400 MILLION DEBT PROGRAMME

Dec 6, 2011 -
MARC has affirmed the short-term and long-term ratings of MRCB Sentral Properties Sdn Bhd’s (MRCB Sentral) RM400 million Commercial Papers/Medium Term Notes (CP/MTN) Programme at MARC-1(fg)/AAA(fg) with a stable outlook. The rating action affects RM400 million of outstanding notes issued under the programme. The affirmed ratings and outlook are underpinned by an unconditional and irrevocable financial guarantee insurance policy provided by Danajamin Nasional Berhad (Danajamin) for the CP/MTN Programme. MARC currently rates Danajamin’s financial strength as AAA/stable on the basis of its important role as Malaysia’s first and sole financial guarantee insurer, its status as a government-sponsored entity, its solid capital base and ample liquidity.

Wholly-owned by Malaysian Resources Corporation Sdn Bhd (MRCB), MRCB Sentral Properties Sdn Bhd’s (MRCB Sentral) principal activities are property development and property investment and management. Its current list of properties includes a shopping mall, an office tower and factory premises, where it receives rental income and property management fees. Its parent, MRCB, a company listed on the main market of Bursa Malaysia, is principally an investment holding company; the company and group are involved in construction, property development, property investment, environmental engineering, infrastructure, and building services. As at September 30, 2011, the largest shareholder of MRCB is the national social security provider, Employees Provident Fund Board (EPF), with an equity stake of 42.25%.
The programme has been fully drawn down and the proceeds have been used to finance the construction and development of KL Sentral Park, a mixed commercial development project located within the 72-acre Kuala Lumpur Sentral (KL Sentral) commercial hub, which comprises Stesen Sentral, corporate office towers, 5-star international hotels, luxury condominiums and shopping mall. The entire KL Sentral development, which has a gross development value of RM14 billion, is expected to be fully completed by 2016. Debt service on the non-amortising notes is supported by rental revenue stream of KL Sentral Park.

KL Sentral Park, a green building, consists of five blocks (Blocks A to E) of contemporary office buildings with gross floor area (GFA) of 982,000 square feet (sq ft), net lettable area (NLA) of 437,081 sq ft and 72,290 sq ft for office and retail respectively, and car park facilities for 680 cars. The construction of KL Sentral Park, which commenced in the third quarter 2009, has been completed within the budgeted timeframe, with vacant possession delivered to two anchor tenants, one government agency and a multinational oil and gas company. Blocks B and C have been occupied since September 2011 and Blocks E and D will be occupied by December 2011. Non-completion risks have been eliminated with the completion of the property, and the property’s exposure to vacancy risk has been meaningfully mitigated with a projected occupancy level of 78% by December 2011 for its office space. Only Block A and the retail space in KL Sentral Park remains untenanted; these collectively account for 32.7% of the property’s NLA. MARC notes a fairly high degree of tenant concentration; the three anchor tenants will occupy 78% of NLA of the property’s office space. However, tenant concentration risks are sufficiently mitigated by the property’s favourable location and high quality which lowers re-leasing risk, as well as the six to fifteen year tenure of leases. Also, the overall profile of tenants implies low tenant credit risk. The long-term leases are expected to provide cash flow stability to MRCB Sentral and support to its debt servicing ability.

The provision for upward rental adjustments every three years under MRCB Sentral’s lease arrangements provide some measure of protection against inflation. The expected net annual rental income from the secured tenants of RM27.5 million provides a 1.53 times cover of coupon payments and guarantee fees. Fixed charge coverage levels will be strengthened with the take-up of the remaining untenanted Block A and retail space. The programme is exposed to refinancing risk due to its non-amortising structure, where the principal repayment is due at the end of the programme’s seven-year tenure. The two funding options contemplated for the repayment of the notes are refinancing or asset disposal. MARC believes that the high quality of KL Sentral Park should help mitigate debt refinancing risk and/or execution risk associated with the property disposal.

Noteholders are insulated from downside risks in relation to MRCB Sentral’s credit profile by virtue of the guarantee provided by Danajamin. Any changes in the supported ratings or rating outlook will be primarily driven by changes in Danajamin’s credit strength.

Contacts:
Sabesh Parameswaran, +603-2082 2260/ sabesh@marc.com.my;
Goh Shu Yuan, +603-2082 2268/ shuyuan@marc.com.my;
Francis Xaviour Joe, +603-2082 2279/ fxjoe@marc.com.my.

RAM Ratings reaffirms AAA/P1 ratings of Rantau Abang's RM10 billion Sukuk Musyarakah

Published on 10 October 2011
RAM Ratings has reaffirmed the AAA/P1 ratings of Rantau Abang Capital Berhad’s (“RACB”) RM3 billion Islamic Commercial Papers/Medium-Term Notes Programme. At the same time, the AAA rating of its RM7 billion Islamic Medium-Term Notes Programme has also been reaffirmed. Both long-term ratings have a stable outlook. The securities are collectively known as “the Sukuk Musyarakah”.

Under the transaction, a Musyarakah partnership had been established between Khazanah Nasional Berhad (“Khazanah” or “the Company”) and RACB; the capital returns and periodic profit payments on the Sukuk Musyarakah stem from an investment portfolio consisting of Shariah-approved shares and assets owned by Khazanah. The ratings of the Sukuk Musyarakah ultimately reflect the credit strength of Khazanah, in its capacity as the Purchase Undertaking Obligor; the Company will purchase the specific portfolio units from RACB at a pre-agreed price upon maturity or a dissolution event.

“Khazanah’s credit profile hinges on its strategic position as the investing fund of the Malaysian Government. This accords it superior financial flexibility in terms of access to the capital markets, supported by the quality of its diversified portfolio,” notes Siew Suet Ming, RAM Ratings' Head of Structured Finance Ratings. Given the Company’s strategic role, RAM Ratings believes that the likelihood of an extraordinary support from the Malaysian Government, if required, is very high.
Khazanah’s debt-servicing aptitude is primarily supported by dividend receipts, equity divestments and, to a smaller extent, its refinancing ability. The Company’s top line rebounded to RM5 billion in fiscal 2010 (+45.6%), supported by more robust dividend income and divestment gains. However, its profit performance was affected by RM2.1 billion of impairment losses, which suppressed its return on capital employed to 3.2% (fiscal 2009: 3.8%). Looking ahead, we expect Khazanah’s short-term financial performance to be subdued, given the uncertain global financial and economic landscapes.

As at end-2010, Khazanah’s balance sheet has a reasonably high level of borrowings at RM36 billion. Excluding amounts owed to related companies, its gearing ratio stood at 1.7 times as at the same date. On a more positive note, its operating profit before depreciation, interest and tax debt coverage broadened from 0.08 times to 0.13 times over the same period, underpinned by its sturdier top line.

Looking ahead, Khazanah is likely to stay highly leveraged over the medium term as it may not be able to quickly monetise its new investments given their long gestation periods. Notably, the Company received a RM3 billion equity infusion from the Malaysian Government this year, as part of the RM10 billion of funding for Khazanah under the Second Stimulus Package (announced in 2009); its gearing level is estimated to have eased to about 1.6 times following this equity injection.

Media contact
Peter Su
(603) 7628 1036
petersu@ram.com.my

RAM Ratings reaffirms Special Power Vehicle's debt rating

Published on 26 August 2011
RAM Ratings has reaffirmed the A1 rating of Special Power Vehicle Berhad’s (SPV or the Company) RM800 million Class A Islamic Medium-Term Notes Facility (2005/2022) (Class A IMTN); the long-term rating has a stable outlook.



SPV is a special-purpose vehicle set up as a funding vehicle to raise part of the financing required for the development of Jimah Energy Ventures Sdn Bhd’s (JEV or the IPP) coal-fired power plant (the Project or the Plant) - comprising 2 power-generating units, each with a capacity of 700 MW - in Port Dickson, Negri Sembilan. The reaffirmation of SPV’s debt rating is concurrent with that of JEV’s AA3-rated RM4.85 billion Senior Islamic Medium-Term Notes Facility (2005/2024) (Senior IMTN), which has a stable outlook.

SPV’s Class A IMTN is a subordinated project debt since this facility and JEV’s Senior IMTN depend on a single project as their only source of cashflow. RAM Ratings’ approach to rating a subordinated project debt focuses on the extent of its subordination to more senior project debts, and the effective cashflow protection provided to the subordinated debt, i.e. its sub-finance service cover ratio (or sub-FSCR). The sub-FSCR measures the residual cash after meeting the obligations as well as the cash-trap mechanisms and distribution tests of JEV’s Senior IMTN.

The 1-notch difference between the ratings of the Class A IMTN and JEV’s Senior IMTN is premised on the former’s subordination to the latter as well as its strong debt-like features. Furthermore, the rating of the Class A IMTN is supported by the projected minimum and average sub-FSCRs, on payment date, of 1.07 times and 1.26 times, respectively. In assessing SPV’s distributions, RAM Ratings’ cashflow projections assume that the Company will adhere to its financial covenants throughout the tenure of the Class A IMTN (i.e. on a forward-looking basis, as opposed to only the year of assessment). That said, we caution that any excessive distribution will diminish the coverage available for the Class A IMTN.

Media contact
Yean Ni Ven
(603) 7628 1172
niven@ram.com.my

Bank Negara Malaysia decided to raise the Overnight Policy Rate (OPR) by 25 basis points to 3.00 percent

Full article: http://www.bnm.gov.my/index.php?ch=8&pg=14&ac=2253

Bank Negara Malaysia (5 May 2011): At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to raise the Overnight Policy Rate (OPR) by 25 basis points to 3.00 percent. The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 2.75 percent and 3.25 percent respectively.

The global economic recovery has continued in the first quarter of the year, but the growth has been highly uneven across regions. Growth in the advanced economies during this period has remained modest. In the region, despite some moderation, the growth has remained strong, supported by robust domestic economic activity. Global inflation has, however, increased on account of rising energy and commodity prices. In several countries, further upward pressure on inflation has been exerted by domestic demand conditions. Although the global recovery is expected to continue going forward, downside risks have increased, arising from the potential for higher energy and commodity prices, possible supply disruptions following developments in Japan, and the heightened volatility in capital flows to emerging economies.

In the domestic economy, the latest indicators point towards the continued strengthening of private investment and sustained private consumption expenditure in the first quarter. The export performance also improved, supported by regional demand. Going forward, the assessment is for the Malaysian economy to remain firmly on a steady growth path, with growth improving gradually during the course of the year. Growth will be underpinned by the firm expansion of domestic demand. Sustained employment conditions and income growth is expected to provide support to private consumption, while private investment is projected to strengthen amidst the improved investment environment. The developments in Japan are expected to have a limited impact on the overall domestic economy. Positive prospects for the region and strong demand for commodities are expected to continue to support the Malaysian economy.

Domestic headline inflation has continued to increase, rising to 3% in March to average 2.8% for the first quarter of 2011. The increase was mainly due to higher food and fuel prices. The assessment is that supply factors will continue to be a key determinant affecting consumer prices. Global commodity and energy prices are projected to remain elevated during the year, with inflation in major trading partners also expected to rise further. There are also some signs that domestic demand factors could exert upward pressure on prices in the second half of the year.

With the economy firmly on a steady growth path, the MPC decided to adjust the degree of monetary accommodation. At the current OPR level, the stance of monetary policy remains supportive of growth. The future stance of monetary policy will depend on the assessment of the risk to growth and inflation prospects.