MARC AFFIRMS ITS AAID RATING ON INSTACOM SPV'S MMTN

Dec 13, 2011 -
MARC has affirmed the rating of Instacom SPV Sdn Bhd’s (ISPV) RM200 million Murabahah Medium Term Notes (MMTN) Programme at AAID. The outlook on the rating is stable. ISPV is a wholly-owned subsidiary of Instacom Engineering Sdn Bhd (IESB) set up to facilitate the issuance of the MMTN to finance the purchase of completed telecommunication towers (telco towers) constructed by IESB. The affirmed rating reflects the credit quality of the rental payment stream from the three main domestic telecommunication companies (telco companies), and contract proceeds from telco towers constructed on behalf of DiGi Telecommunications Sdn Bhd (DiGi), against which the repayment of the notes is secured. Additionally, noteholders are not exposed to construction and commingling risks; drawdowns under the note facility can only be made with respect to completed telco towers and all assigned revenues arising from tower rentals and construction are paid into trustee-controlled designated accounts.

Sarawak-based IESB was awarded a 3-year turnkey contract in 2005 by Desabina Industries Sdn Bhd (DISB), a Terengganu state-backed company (SBC), to construct telco towers in Terengganu under the Malaysian Communication and Multimedia Commission’s (MCMC) Time-2 (T2) programme. The contract ended in 2008 following the completion of the construction of 84 telco towers. The completed towers were leased for seven years under a licence agreement signed between Desabina and telco companies. Desabina has surrendered its rights to rental payments to ISPV for the repayment of the issued notes and, to a lesser extent, maintenance and upkeep of the towers. The lease rental amount is dependent on several factors: height of the towers, the number of telco companies sharing the towers and any variation orders for the towers. The strong financial profiles of the three main domestic mobile operators, Maxis Berhad, Celcom Axiata Berhad, and DiGi, continue to underpin the credit strength of the rental payment stream.

ISPV is also allowed to utilise the MMTN facility to finance telco tower construction contracts signed between IESB and other telco and SBCs. As of date, IESB has entered into a telco tower construction contract with DiGi under which lump sum payments are made upon the completion of the towers. A total of 883 towers have been constructed under this contract. The short-term nature of the financing required has minimised cash flow mismatch risk and provides some measure of predictability to ISPV’s cash flow stream.

In the current financial year, RM15 million of RM20 million notes due were redeemed. ISPV’s cash balance of RM19.6 million as at end-August 2011 is more than sufficient to meet its scheduled obligations under the programme for the next six months. Currently, total notes outstanding under the rated facility amount to RM56 million. Over the next 12 months, ISPV’s finance service cover ratio (FSCR) is expected to range between 1.26 times and 3.63 times, as compared to FY2010’s 2.93 times and the programme’s FSCR covenant of 1.25 times.

IESB is undertaking a corporate exercise with I-Power Berhad (I-Power), a Bursa Malaysia Ace Market-listed company involved in e-business software development and software integration services. Upon completion, IESB shareholders will have a 71% stake in I-Power. The transaction is not expected to have any impact on ISPV as it would remain a wholly-owned subsidiary of IESB. MARC has received confirmation from the issuer that the corporate exercise does not breach any covenants made by ISPV in the issuance of the MMTN.

The current stable outlook on the rating incorporates expectations of continued timely payments from existing towers.

Contacts:
Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.

HSBC Amanah to focus on Middle East and Asian emerging markets

GLOBAL: HSBC Amanah, which is optimistic on its growth this year and going into next, sees the emerging markets of Asia and the Middle East as an integral component of the growth of the Shariah compliant financial industry.

"Islamic finance is an emerging markets phenomenon; 80% of the world's Muslims live in Asia and the Middle East. Given that these regions are set to grow faster than the world average, Islamic finance is thus likely to continue growing faster than conventional banking. This is further helped by the fact that growth of Islamic finance has been primarily led by customer pull and not a regulatory push," said Razi Fakih, the global deputy CEO of HSBC Amanah.

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RAM Ratings reaffirms AA1 ratings of Panglima's Serial Bonds

Published on 09 December 2011
RAM Ratings has reaffirmed the AA1 rating of Panglima Power Sdn Bhd’s (“Panglima” or “the Company”) RM830 million Redeemable Secured Serial Bonds (“Serial Bonds”), with a stable outlook. Panglima is an independent power producer (“IPP”) that owns and operates a 720-MW nominal-capacity, combined-cycle, gas-turbine power plant in Teluk Gong, Melaka.

The rating remains supported by Panglima’s strong business profile. In FYE 31 January 2011 (“FY Jan 2011”), the Company delivered a satisfactory operational performance, having met most of the operating parameters under its power purchase agreement (“PPA”) with Tenaga Nasional Berhad (“TNB”). Although Panglima was unable to claim full available capacity payments owing to 2 incidents of failure to despatch instructions, the shortfall was minimal and had no detrimental effect on the Company’s debt-servicing ability. Meanwhile, the plant’s heat rates had been kept below the PPA’s allowable levels, thus allowing Panglima to fully pass through its fuel costs to TNB.

The Company’s debt-servicing ability remained intact in FY Jan 2011, with a debt-service coverage ratio (“DSCR”) of 2.43 times (with cash balances, post-distribution). Looking ahead, Panglima is expected to register minimum and average DSCRs (with cash balances, post-distribution) of 1.60 times and 2.15 times, respectively, on principal repayment dates. RAM Ratings understands that the Company will retain sufficient cash to prioritise its debt-servicing obligations and potential maintenance expenditure throughout the tenure of the Serial Bonds.

Similar to other IPPs, however, Panglima remains exposed to regulatory and single-project risks.

Media contact
Jocelyn Chiang
(603) 7628 1124
jocelyn@ram.com.my

North Korea state TV says Kim Jong il has died

SEOUL (Reuters) - North Korean leader Kim Jong-il died Saturday on a train trip, a tearful state television announcer, dressed in black, reported Monday.

The announcer said that the 69-year old had died of physical and mental over-work on his way to give "field guidance."

He had suffered a stroke in 2008, but appeared to have recovered.

The reclusive state had begun the process of transferring power to his son Kim Jong-un, believed to be in his late 20s.

SEE STAR: http://thestar.com.my/news/story.asp?file=/2011/12/19/reutersworld/20111219112017&sec=reutersworld

RAM Ratings reaffirms AAA rating of Cagamas MBS's CMBS 2004-1, with a stable outlook

Published on 08 December 2011
RAM Ratings has reaffirmed the AAA rating of Series 4 of Cagamas MBS Berhad’s (“Cagamas MBS”) RM1,555 million residential mortgage-backed securities (“RMBS” or “Bonds”), i.e. CMBS 2004-1, with a stable outlook. The Bonds are secured by a static portfolio of government staff housing loans (“GSHLs”) that are serviced via monthly deductions from the pensions of retired public-sector employees. The reaffirmation is premised on the available overcollateralisation (“OC”) ratio of 130.88% as at the latest reporting date of 20 October 2011, the overall performance of the collateral pool and the structural support afforded by the transaction structure.

The OC ratio is calculated against RM575.99 million of outstanding GSHLs and RM31.20 million repurchased GSHLs, together with RM189.35 million of cash balances and permitted investments. “This level of OC provides sufficient protection against the risk of prepayment, negative variance of investment returns and defaults under an “AAA” stress scenario,” explains Siew Suet Ming, RAM Ratings’ Head of Structured Finance Ratings.

As at 28 February 2011, the portfolio of GSHLs comprised 34,656 mortgage loans, with an average outstanding balance of RM16,620 per account; the weighted-average remaining term stood at 8.69 years. As at the same date, the cumulative prepayment rate came in at 11.05%, falling within our expectations. Meanwhile, 648 mortgages (with a total principal value of RM10.11 million) that were more than 6 months in arrears were mainly due to delayed notification to Bahagian Pinjaman Perumahan vis-a-vis borrowers who had passed away. Nonetheless, RAM Ratings does not expect the current level of delinquency to become a major concern because it represents only about 0.52% of the portfolio’s original principal balance.

On 20 October 2011, Cagamas MBS fully redeemed its RM290 million CMBS 2004-1 Series 3 Bonds. Following the redemption, RM345 million of the Bonds remain outstanding. RAM Ratings notes that Cagamas MBS did not exercise its prepayment option on the Series 4 Bonds on the same date, despite having met the minimum balance requirement of RM66 million after such prepayment. Based on the portfolio’s performance, our analysis indicates that the portfolio will be able to generate sufficient cash to cover the expected coupon payments on a timely basis, as well as the final principal repayment on the CMBS 2004-1 Series 4 Bonds on their maturity date.

Media contact
Lee Sook Wei
(603) 7628 1017
sookwei@ram.com.my

RAM Ratings reaffirms ratings of Quill Capita's RM134 million CP/MTN, issued by subsidiary Boromir Capital

Published on 07 December 2011
RAM Ratings has reaffirmed the respective long-term ratings of Boromir Capital Sdn Bhd’s (“Boromir”) Class A, Class B, Class C and Class D Commercial Papers/Medium-Term Notes (“CP/MTN”) Programme at AAA, AA2, A1 and A2; all the long-term ratings have a stable outlook. At the same time, the short-term ratings of each class of notes under the CP/MTN Programme have been reaffirmed at P1. The ratings reflect the credit support provided by the loan-to-value ratios (ranging from 45.86% to 56.38%) and debt service coverage ratios (ranging from 1.65 times to 2.03 times) that commensurate with the rating of each class of notes under the CP/MTN Programme, as well as the healthy performance of the securitised properties.
Boromir, a special-purpose vehicle, had been set up by the sponsor of this transaction — Quill Capita Trust (“QCT”) – to carry out the commercial real estate-backed transaction involving a portfolio of 4 office buildings and 1 industrial property (collectively known as “the Properties”), with a combined market value of RM359.50 million as at 31 December 2010. QCT is a real-estate investment trust that is involved in the acquisition of and investment in commercial properties in Malaysia.

RAM Ratings views the Properties to be of above-average quality. Notably, they are fully occupied by reputable multinational corporations (“MNCs”) from a diverse range of industries. Furthermore, the Properties are situated in prime and near-prime locations throughout the Klang Valley, thus catering well to the business needs of their tenants. However, tenant-concentration risk remains significant as all of the Properties are occupied by single tenants. “All said, these tenants are reputable MNCs that possess strong business and credit profiles, thus providing some degree of comfort with respect to the reliability and timeliness of lease payments,” notes Siew Suet Ming, RAM Ratings’ Head of Structured Finance Ratings.

We highlight that about 83% of the leases (based on the total net lettable area) in the portfolio will expire within 3 years. In this regard, we believe that these lease agreements are very likely to be renewed as the tenants have already invested significant capital expenditure on the buildings to cater to their own requirements. Hefty relocation costs also act as a buffer against non-renewal risk to some extent. Similarly, these factors mitigate any potential pressure on the rental rates of the Properties due to the upcoming supply of office buildings in the Klang Valley (including Cyberjaya) within the next few years.

Notably, the performance of the Properties had remained healthy during the period under review, with a net property income (“NPI”) of RM12.47 million in 1H 2011. For the full year, we expect an NPI of RM24.94 million against our projected sustainable cashflow of RM22.14 million. We anticipate the cashflow generated by the Properties to remain stable throughout the tenure of the transaction as their rental rates have been fixed via lease contracts, with renewal options that range from 3 to 5 years.

Media contact
Yong Keck Phin
(603) 7628 1183
keckphin@ram.com.my

RAM Ratings reaffirms Maybank's AAA/P1 ratings

Published on 06 December 2011
RAM Ratings has reaffirmed Malayan Banking Berhad’s (“Maybank” or “the Group”) long- and short-term financial institution ratings at AAA and P1, respectively. At the same time, the respective issue ratings of Maybank and Cekap Mentari Berhad (a subsidiary set up to issue subordinated notes) have been reaffirmed. The ratings reflect Maybank’s significant systemic importance, excellent franchise and sound credit fundamentals.

With an asset base of RM431 billion as at end-September 2011, Maybank is the largest domestic banking group in Malaysia, and commands the largest share of loans and deposits in the local banking system. Maybank’s subsidiaries have strong market positions in their respective businesses. Maybank Islamic Berhad is the largest domestic Islamic commercial bank in terms of assets, while PT Bank Internasional Indonesia Tbk (“BII”, 97%-owned by Maybank), is the ninth-largest commercial bank in Indonesia. The Group has regional investment banking and stockbroking capabilities through its recent acquisition of Kim Eng Holdings Limited, a Singapore-based regional securities and investment banking group, adding to Maybank Investment Bank Berhad’s entrenched market position in the Malaysian investment-banking space. Elsewhere, the Group markets its insurance and takaful products under the “Etiqa” brand, and has a dominant share of an estimated 10%–15% of the domestic general insurance/takaful industry’s gross and net premiums and contributions.

In FY June 2011, Maybank charted a 17% year-on-year increase in pre-tax profit to RM6.3 billion – supported by loan growth, lower credit costs, higher revenues from fees and commissions, and more robust brokerage as well as advisory income. Gross loans from its Singaporean and Indonesian operations had expanded at a faster pace of 35% and 25%, respectively, compared to a more moderate 18% growth for its Malaysian businesses. Notably its credit-cost ratio came in at a low 0.2%, on the back of strong recoveries and reduced impairment charges after the adoption of FRS 139 for loan provisioning. Despite the several increases in Malaysia’s overnight policy rate, Maybank’s net financing margins have been narrowing. Given the typically competitive domestic banking landscape, increasing contributions from BII are expected to sustain Maybank’s group-level net financing margins.

As at end-September 2011, the Group’s asset-quality indicators remained healthy – its gross impaired-loan ratio had eased to 3.2% (post-FRS 139 restated gross impaired-loan ratio as at end-June 2010: 4.7%). As Malaysia’s flagship bank, its funding capabilities are unrivalled – Maybank has a large base of low-cost current- and savings-account deposits. Going forward, we expect the Group’s loans-to-deposits ratio – which stood at 91% as at end-September 2011 - to fall within the 85%-90% range. Notably, Maybank’s overall capitalisation levels are considered sound relative to its asset quality and profit performance. Although we had earlier expected the Group’s capitalisation to be dented by its acquisition of Kim Eng, this has been restored by Maybank’s recent sizeable subordinated debt issues, as well as the reinvestment of dividends under its Dividend Reinvestment Plan.

While the Group’s overseas expansion strategies support earnings diversification, emerging markets entail higher operational and regulatory risks. This has become more apparent of late, with Bank Indonesia’s (the Indonesian central bank) move to potentially impose limits on foreign ownership of Indonesian banks. In FY June 2011, international operations contributed 24% of Maybank’s pre-tax profits. We expect this segment to account for about 30% of the Group’s pre-tax profits in the next 1–2 years, boosted by earnings from Kim Eng. The management aspires towards a 40% contribution from Maybank’s international operations by 2015.

Media contact
Joanne Kek
(603) 7628 1163
joanne@ram.com.my

GCC corporate banking profitability in recovery mode from 2008 crisis

GLOBAL: GCC corporate banking profitability is poised for a recovery from the 2008 financial crisis as loan loss provisions continue to decline from its peak in 2009, according to a report by The Boston Consulting Group (BCG).

"This has resulted in a corporate banking profitability increase of over 40% from 2009 levels even as revenues have remained flat throughout 2009-2010 and the first half of 2011," said Markus Massi, a partner and managing director at BCG and its regional leader for wholesale banking and capital markets.

The upward trend has emerged despite only Saudi Arabia and the UAE reporting a yearly increase in corporate banking profitability; with other GCC countries showing flat growth and Bahrain recording a declining trend.

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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 rating of Cagamas MBS's CMBS 2005-1, with stable outlook

Published on 01 December 2011
RAM Ratings has reaffirmed the AAA rating (with a stable outlook) of Cagamas MBS Berhad’s (Cagamas MBS) RM2.05 billion Sukuk Musyarakah Islamic residential mortgage-backed securities (2005/2020), known as CMBS 2005-1. The reaffirmation is premised on the available overcollateralisation (OC) ratio of 57.27% as at 31 March 2011, the overall performance of the collateral pool, and the structural support afforded by the transaction structure. The stable outlook reflects RAM Ratings’ belief that the pattern of defaults and losses as well as prepayments on the government staff Islamic home-financing facilities (GSIHFs) will continue to fall within our expectations.

The OC ratio is calculated against RM2.04 billion of outstanding GSIHFs and RM448.82 million of cash and permitted investments. “This level of OC provides sufficient protection against the risk of prepayment, negative variance of investment returns and defaults under an “AAA” stressed scenario,” explains Siew Suet Ming, RAM Ratings’ Head of Structured Finance Ratings.

As at 31 March 2011, the portfolio of GSIHFs comprised 34,094 accounts, with an average outstanding balance of RM59,948 per account; the weighted-average remaining term came up to 14.64 years. As at the same date, the cumulative net default rate for the underlying financing portfolio stood at 0.45% (as a percentage of the principal balance on the purchase date), below RAM Ratings’ base-case assumption.
Meanwhile, the cumulative prepayment rate on the underlying GSIHFs stood at 6.07%. Based on the current portfolio performance, we expect sufficient cash to be accumulated for the partial redemption of Tranche A6 in 2012 (the next scheduled maturity date of the sukuk). However, we note that the low levels of prepayment have heightened liquidity risk; should the portfolio of GSIHFs continue exhibiting the current trend of low prepayments and should Cagamas MBS exercise its option to prepay Tranche A6 of the sukuk on each maturity date, the transaction could face liquidity pressure in 2017, i.e. when Tranche A5 becomes due.

All said, however, we note that Cagamas MBS undertakes a liquidity analysis before any decision to exercise the option to prepay Tranche A6. As such, we believe that any prepayment of Tranche A6 would not be to the extent that it would have a material adverse effect on the transaction.

Media contact
Woon Tien Ern
(603) 7628 1040
tienern@ram.com.my