Monday, March 26, 2012
Friday, March 23, 2012
MARC AFFIRMS ITS MARC-1ID/AA-ID RATINGS ON BAYU PADU SDN BHD'S RM500 MILLION ISTISNA’ SERIAL BONDS AND RM100 MILLION MURABAHAH CP/MTN PROGRAMME
Mar 22, 2012 -
MARC has affirmed its ratings on Bayu Padu Sdn Bhd’s (Bayu Padu) RM500 million Istisna’ Serial Bonds (Istisna' Bond) and RM100 million Murabahah Commercial Papers/Medium Term Notes (MCP/MTN) programme at AA-ID and MARC-1ID/AA-ID respectively with a stable outlook. The rating action affects RM220 million of Istisna' Bonds and RM95 million of MCP notes outstanding under the rated programmes. Bayu Padu is a wholly-owned funding vehicle of SapuraCrest Petroleum Bhd (SapuraCrest).
The affirmed ratings reflect SapuraCrest group’s leadership position in pipeline installation and offshore drilling, the improvement in its consolidated profitability and the earnings visibility provided by the group’s RM10.1 billion in outstanding order book as at November 30, 2011. These strengths are moderated by the group’s exposure to currency volatility, the strong competition in international markets and the execution risks related to its initial venture into marginal oilfield development. The ratings are primarily driven by the consolidated credit profile of SapuraCrest in that the issuer’s repayment capacity is derived from the financial resources of the group.
The ratings are unaffected by the proposed merger of SapuraCrest with Kencana Petroleum Berhad (Kencana) under which the assets and liabilities of both entities will be combined under a listed merged company, SapuraKencana Petroleum Berhad (SapuraKencana). The merger primarily aims to create a broad-based, well-integrated oil and gas services provider with strong delivery capabilities across the value chain, by leveraging the complementary capabilities of both entities. As one of the country's biggest oil and gas (O&G) service provider, the merged entity would be better placed to compete internationally by offering full-fledged engineering, procurement, construction, installation and commissioning (EPCIC) services, especially for more complex marginal and deepwater exploration and development activities.
While MARC believes the merger will likely produce competitive gains as well as cost synergies, a more visible impact on post-merger credit metrics of the combined entity vis-รก-vis its pro forma pre–merger financial metrics is likely to be seen only over the medium and long term. MARC is mindful that SapuraKencana’s business risk profile would evolve beyond the immediate post-merger period in which business integration concerns are likely to dominate. Integration risks should be limited on account of management’s expectation of no attrition and/or rationalisation of staff and the modest overlap in the operations of both entities. Separately, MARC expects the group’s post-merger integration strategy of growing its international business to give rise to additional exposure to currency and country risks.
MARC’s initial assessment of the effect of the merger on SapuraCrest’s financial profile indicates that the more immediate impact of the merger would be an increase in the financial risk profile of the merged entity relative to that of SapuraCrest, balanced against the increased scale and breadth of its business, and improved competitive standing. Selected key financial metrics of the combined entity’s pro forma financial statements, which are based on SapuraCrest and Kencana’s latest audited accounts, are as follows: operating profit margin (OPM) of 13.8%, operating profit before interest and tax (OPBIT) interest coverage of 10.6 times (x), cash flow from operations (CFO)-to-total debt of 0.15x and total debt-to-equity (DE) of 0.75x. These compared with SapuraCrest’s equivalent metrics for the same period: OPM of 11.0%, OPBIT interest coverage of 9.2x, CFO-to-total debt of 0.44x and total DE of 0.57x, indicates that the combined entity’s pro forma debt servicing metrics are somewhat weaker while its profitability and OPBIT interest coverage metrics have strengthened slightly. MARC also notes that the merger entails the payment of approximately 15.6% of the total merger consideration in cash to the shareholders of both companies which will be financed through borrowings of approximately RM2.0 billion by SapuraKencana. With additional borrowings of RM310.0 million for the purchase of Clough’s marine construction business, the pro forma gearing of SapuraKencana would increase to 0.81x.
For the nine months ended October 31, 2011 (9MFY2012), SapuraCrest posted a pre-tax profit of RM397.2 million on revenue of RM1,996.0 million. Its operating profit margin almost doubled to 19.1%, mainly due to stronger performance of its IPF division and the turnaround in its marine services division, resulting in SapuraCrest recording a profit of RM26.0 million compared to a loss of RM51.8 million in the previous corresponding period. Cash flow from operations increased to RM250.6 million (9MFY2011: RM207.5 million) and gearing as measured by the group’s debt-to-equity ratio improved to 0.49x. Cash and bank balances as at end-9MFY2012 at RM646.4 million, suggest that Bayu Padu should be in a position to meet its scheduled debt maturities of RM125.0 million due in 2012 while noting that the cash within the group continues to be largely retained at its operating entities.
Should the proposed merger be successfully completed, the current ratings can accommodate somewhat weaker interim cash flow protection measures on the part of the combined entity in light of the perceived longer-term benefits of the merger. However, should the merged entity’s credit metrics be significantly weaker than expected, MARC will revisit the outlook and/or the ratings.
Contacts:
Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my;
Sabesh Parameswaran, +603-2082 2260/ sabesh@marc.com.my;
Francis Xaviour Joe, +603-2082 2279/ fxjoe@marc.com.my.
Thursday, March 22, 2012
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Japan posts surprise trade surplus in February (By BBC)
See: http://www.bbc.co.uk/news/business-17470616
Japan posted a surprise trade surplus in February, after a record high deficit the previous month, as external demand picked up.
The surplus stood at 32.9bn yen ($394m; £248m), the Ministry of Finance said. In January the deficit came in at 1.5tn yen.
Japan has had to increase energy imports, as most of its nuclear reactors remain shut.
Analysts said this was not necessarily a sign of a swing to surplus for Japan.
Export push
"The trade data was a positive surprise as falls in exports were smaller than expected," said Taro Saito from NLI Research Institute in Tokyo.
"But it is too early to conclude the trade balance has returned to a surplus trend."
Overseas shipments fell 2.7% in February from the year earlier, the data showed. Most forecasts were for a drop of 6.5%. Imports rose 9.2% from the previous year.
The improving health of the US economy has contributed to increased demand for Japanese goods.
"Exports to the United States are growing and we have seen signs that the US economy has hit a bottom, so this is a positive sign for Japan's exports," said Shuji Tonouchi from Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
Energy worries
Japanese trade has been in deficit for five months, in large part because of surging demand for imported fossil fuels.
After last year's earthquake and tsunami led to the worst nuclear accident in 25 years, the government decided to take most of Japan's nuclear reactors offline.
More than 30% of Japan's electricity supply was generated by nuclear energy.
The rising price of oil globally and a weaker yen have caused the import bill to swell, exacerbating the deficit.
Wednesday, March 21, 2012
MARC DOWNGRADES KNM GROUP BERHAD AND KNM CAPITAL SDN BHD’S LONG-TERM RATINGS; AFFIRMS ITS SHORT-TERM RATING; REVISES OUTLOOK TO DEVELOPING
Mar 21, 2012 -
MARC has downgraded the long-term ratings to A+ID from AA-ID, and revised the outlook of the ratings to developing from stable and concurrently affirms the short-term ratings at MARC-1ID for the following rated programmes/issuers:
RM300.0 million Murabahah Underwritten Notes Issuance Facility (MUNIF)/Islamic Medium Term Notes (IMTN) Programme of KNM Capital Sdn Bhd (KNM Capital); and
RM400.0 million Islamic Commercial Paper (ICP) Programme/RM1.1 billion Islamic Medium Term Notes (IMTN) Programme of KNM Group Berhad (KNM).
The rating action affects RM190.0 million of outstanding notes issued by only KNM Capital as there has been no issuance by KNM. The downgrade of the long-term rating reflects KNM’s weak results in recent periods and continued challenging market conditions for the process equipment market. The developing outlook that MARC has attached to the ratings recognises the potential for KNM to stabilise and restore its financial position through rationalisation of its capacity and product portfolio as well as the possibility of negative rating action if the gains from rationalisation are insufficient to stabilise and improve KNM’s credit metrics. The affirmation of the short-term ratings is based on its satisfactory liquidity position vis-a-vis ongoing short-term debt obligations.
KNM’s weak results in recent periods reflect increased competition in the lower-to-middle range process equipment segment and reduced demand for process equipment due to economic cyclical factors. In the high-end process equipment segment, KNM also saw modest increase in new contracts secured due to a general slowdown in capital expenditure by oil and gas majors. Delays in financial close for energy renewal projects which KNM had earlier depended upon to turn around its declining profitability significantly impacted its 2011 results and financial profile. From a geographical viewpoint, the group is exposed to potential macro-economic difficulties in Europe, given the rather high revenue contribution from its European business. The group’s European operations generated 68% of revenue for financial year ended December 31, 2011 (FY2011).
The company has alluded to an expected rebound in 2012, which is expected to be driven by the rationalisation of its plant capacity and product portfolio. In response to the challenges posed by increased competitive intensity in the lower-to-middle range product segment, KNM intends to focus on the high-end segment and diversify into new end markets. On a related note, MARC observes that wholly-owned process equipment manufacturer BORSIG GmbH has defended its niche position well and has significant recurring maintenance and spare parts business. MARC believes that the group’s strategic focus on high-end offerings and cost efficiencies should benefit its consolidated gross margins. At the same time, the agency is mindful of the incremental risks posed by KNM’s decision to market its services as an engineering, procurement, construction and commissioning (EPCC) contractor and facility operator for renewable energy projects notwithstanding the potential benefits to be gained in terms of margin enhancement and recurring income generation. Apart from the group’s lack of sufficient track record as an EPCC contractor, the execution and sovereign risks exposure inherent in such projects could weigh on its consolidated business risk profile.
Based on unaudited results, the group posted a pre-tax loss of RM147.5 million (FY2010: pre-tax profit of RM46.5 million) on revenues of RM1,982.3 million. The full-year loss was mainly attributable to provisions for foreseeable losses and credit impairment which collectively totalled RM140.0 million for the quarter ended September 30, 2011 (3QFY2011). MARC’s rating concern is the continuing trend of declining margins compared to the strong historical double-digit margins experienced prior to FY2009. Partially offsetting the pressure on the group’s financial profile is the increase in cash flow from operations (CFO) to RM165.6 million (FY2010: RM53.7 million), presumably due to working capital reductions. Consequently, CFO interest cover increased to 3.3 times (x) (FY2010: 1.1x) while free cash flow reverted to a positive RM90.6 million (FY2010: -RM2.1 million). The group’s liquidity position is strong, backed by cash and bank balances of RM416.4 million (FY2010: RM296.2 million) vis-a-vis the forthcoming notes redemption of RM90.0 million in 2012.
Downward rating pressure would be exerted on the ratings following slower-than-anticipated progress in the group’s financial turnaround and/or a weakening in its business risk profile. While MARC believes that KNM has the potential to restore its financial health to previous levels in the medium term, the meaningful challenges that management will face in achieving this are also acknowledged.
Contacts:
Goh Shu Yuan +603-2082 2268 / shuyuan@marc.com.my;
Francis Xaviour Joe, +603-2082 2279 / fxjoe@marc.com.my.
Tuesday, March 20, 2012
MARC DOWNGRADES MAXTRAL INDUSTRY BERHAD’S ISLAMIC DEBT RATINGS; MAINTAINS MARCWATCH NEGATIVE
Mar 20, 2012 -
MARC has downgraded its ratings on Maxtral Industry Berhad's (Maxtral) RM80.0 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) and RM20.0 million Murabahah Underwritten Notes Issuance/Murabahah Medium Term Notes (MUNIF/MMTN) facilities to BBID and MARC-4ID/BBID from BBB-ID and MARC-4ID/BBB-ID respectively. The ratings continue to be maintained on MARCWatch Negative. The rating action affects RM20.0 million of BaIDS outstanding under the RM80.0 million BaIDS programme and RM20.0 million notes issued under the MUNIF/MMTN facility.
The rating action reflects the breach by Maxtral in complying with its sinking fund account (SFA) obligations due in January 2012 and March 2012 to meet its BaIDS of RM20.0 million maturing in April 2012. MARC understands that the bondholders have agreed to grant the company indulgence on the SFA obligations until end-March 2012. In our last rating announcement on December 19, 2011, we noted that the company is highly dependent on asset disposal to meet its debt repayment obligations and the agency is concerned on the ability of Maxtral to execute the asset disposals within the constrained timeframe. MARC now notes that the company has secured a term loan facility from a financial institution to refinance the BaIDS and to redeem a portion of the MUNIF by end-March 2012. As for the remaining MUNIF, the company has until April 18, 2012 to repay the amount, failure of which will lead to a default and the ratings lowered to D.
For the financial year ended December 31, 2011 (unaudited), the company posted an increase in pre-tax loss to RM120.9 million (FY2010: -RM11.99 million) mainly due to impairment of goodwill of RM98.4 million. The continued weak market conditions saw revenue declining to RM21.9 million (FY2010: RM61.5 million). Cash flow from operations and cash and bank balances are modest at RM5.1 million (FY2010: RM10.4 million) and RM1.1 million (FY2010: RM2.4 million).
MARC will continue to monitor the progress of the refinancing exercise and settlement of the remaining MUNIF.
Contacts:
Goh Shu Yuan, +603-2082 2269/ shuyuan@marc.com.my;
Francis Xaviour Joe, +603-2082 2279/ fxjoe@marc.com.my
Monday, March 19, 2012
MARC AFFIRMS WOORI BANK’S RM1.0 BILLION MTN PROGRAMME RATING AT AAA; OUTLOOK STABLE
Mar 16, 2012 -
MARC has affirmed its AAA rating on Woori Bank’s RM1.0 billion Medium Term Notes (MTN) Programme with a stable outlook. The affirmed rating reflects the bank’s strong banking franchise in the Republic of Korea (Korea), good earnings generation capacity, sound funding profile and capitalisation, as well as progress made by the bank in strengthening its risk management framework. The rating also takes into account easing asset quality pressures, although MARC remains cautious that improving credit trends could reverse given the prospect of slowing domestic growth. While the impending privatisation of Woori Bank’s financial holding company, Woori Finance Holdings Co. Ltd. (WFH), creates uncertainty about the future ownership of the bank, MARC believes that systemic support for Woori Bank will remain high on account of its high systemic importance to the Korean banking sector as a leading commercial bank. MARC rates the notes at the same level as Korea, at AAA with a stable outlook, on its national rating scale. MARC’s country ceiling for ringgit denominated bonds and notes issued by an entity that is domiciled in and operates mainly in Korea is ‘AAA’.
Woori Bank is the second largest commercial bank in Korea, with total assets of KRW242.5 trillion as at end-December 2011 (FY2011). Woori Bank is the key banking entity of WFH, a government-controlled entity in which the Korean government, through Korean Deposit Insurance Corporation (KDIC), currently holds a majority equity stake of 56.97%. The bank has a strong domestic presence across the retail, commercial and corporate banking segments. The bank has also been actively growing its geographic footprint and leveraging on funding and lending opportunities abroad.
The bank’s improving trend of credit costs and declining loan delinquencies suggests that asset quality pressures have been easing. As at end-2011, the bank’s non-performing loan (NPL) ratio has improved to 1.7%, declining from a high of 3.3% at end-FY2010. The bank’s NPLs have declined in absolute terms after rising sharply in FY2010 as a result of its exposure to troubled SME and real estate project financing segments. The improving NPL trend was also aided in part by sales of NPLs to third parties and workouts of problem corporate loans. Problem loans classified as precautionary and below were 4.5% of total loans at the end of 4QFY2011 as compared to 5.1% of total loans in the immediate preceding quarter. MARC considers Woori Bank to be fairly well-provisioned against losses in their loan portfolio. The bank has been building up loan loss reserve (LLR) buffers, as evidenced by its increasing LLR coverage of NPLs which rose to 143.7% as at end-December 2011.
The bank’s financial performance has improved and is showing signs of stabilising. The bank posted a pre-tax income of KRW2,659 billion for FY2011, 73% up from KRW1,537 billion based on restated IRS numbers for FY2010. Woori Bank’s net interest margin (NIM) has improved considerably in recent financial years, reversing the earlier downtrend. The improvement in NIM reflects an increase in the general level of interest rates on corporate and consumer loans, in line with the upward revision of Bank of Korea’s (BOK) key policy interest rate as well as a decline in the bank’s average cost of funds. A significant part of the improvement in Woori Bank’s earnings performance stems from lower credit costs in respect of its loan portfolio which decreased by KRW596 billion from the previous year. The decline in impairment on credit losses was attributable to an improvement in asset quality, and, to a lesser extent, the application of the International Financial Reporting Standards as adopted by Korea and the Financial Supervisory Service’s (FSS) guideline on regulatory reserves for credit losses.
Woori Bank’s improved profitability and easing asset quality pressures are expected to alleviate pressure on the bank’s capitalisation. The bank’s capital adequacy ratios have declined from end-FY2010 levels but remain sound at 13.8% and 10.7% for its total and tier-1 capital adequacy ratios respectively as at December 31, 2011. The bank’s hybrid capital component of its Tier 1 capital dropped to KRW1,682 billion from KRW2,394 billion a year earlier as a result of the redemption of hybrid securities that were issued to the Korean government in March 2009 to assist the bank’s recapitalisation in the wake of the global financial crisis. MARC views positively the bank’s efforts to build a buffer of loan loss reserves during recent periods, which will place the bank in a stronger position to weather a challenging credit cycle.
MARC views the bank’s deposit base to be sufficiently granular and stable and notes its recent success in increasing its proportion of low-cost demand and savings deposits. The bank’s loan-to-deposit ratio shows an improving trend, declining to 94.8% excluding certificates of deposit as at end-2011 from 97.0% a year earlier, and should position the bank to maintain ongoing compliance with regulatory liquidity requirements.
The stable outlook reflects MARC’s belief that Woori Bank’s credit strengths and recurring profitability should allow it to withstand considerable economic headwinds.
Contacts:
Milly Leong, +603-2082 2288/ milly@marc.com.my;
Sakinah Ali, +603-2082 2272/ sakinah@marc.com.my.
Friday, March 16, 2012
Asia’s sovereigns continue to lead Sukuk sales (By IFN)
See: http://redmoney.newsweaver.co.uk/12flcbnbw9dh38rwoni3wx?email=true&a=6&p=22373755&t=20885655
GLOBAL: Asia’s sovereigns have issued a slew of Sukuk in March; in a sure sign that government and government-related debt will continue to dominate the market this year.
Among sovereign and quasi-sovereign Sukuk that have been issued this year include a BN$100 million (US$79.29 million) short-term Sukuk Ijarah issuance from the Autoriti Monetari Brunei Darussalam, the monetary authority, on the 8th March. While remaining under the radar, this is the Brunei’s government 69th issuance of short-term Sukuk; amounting to BN$3.75 billion (US$2.97 billion)-worth of short-term Sukuk since April 2006.
Meanwhile, Indonesia’s government raised IDR1.66 trillion (US$180.94 million) in a Sukuk auction on the 13th March, while its retail Sukuk auction is set to close today; and Malaysia’s Khazanah Nasional issued a US$358 million exchangeable Sukuk.
The activity in the sovereign Sukuk market is also in tandem with the preference seen for emerging market assets that has arisen as a result of the prevailing Eurozone crisis.
In a report on 2011 sovereign transitions and defaults, Fitch Ratings noted that: “Economic and financial disruptions emanating from the Eurozone crisis and Middle East political unrest rendered negative effects on a number of sovereign ratings in 2011. By contrast, Asia Pacific, Latin America and a handful of emerging European credits provided most of the positive sovereign rating moves; with improved growth and economic metrics a common theme.”
It also said that the accumulation of international reserves, greater monetary and exchange rate flexibility, moderate fiscal deficits, strong growth and greater resilience to shocks underpinned the broadly positive credit and ratings outlook for emerging markets last year. “With the exception of the Middle East and Africa, where the political and economic fallout from the Arab Spring took their toll on sovereign creditworthiness, emerging markets quality advanced strongly in 2011,” it added.
Fitch also commented that ratings upgrades for emerging Asia’s sovereigns also picked up momentum last year; with Indonesia as among countries which saw its credit rating move to investment grade from speculative.
RAM Ratings reaffirms AA1/P1 ratings of YTL Corp’s debt issues
Published on 15 March 2012
RAM Ratings has reaffirmed the ratings of YTL Corporation Berhad’s (YTL Corp or the Group) RM500 million Medium-Term Notes Programme (2004/2019) and RM500 million Commercial Papers Programme (2005/2012) at AA1 and P1, respectively; the long-term rating has a stable outlook. YTL Corp is a conglomerate that has interests in power generation and transmission, water and sewerage, cement manufacturing and trading, property investment and development, construction, hotels, telecommunications and information technology.
The ratings are supported by YTL Corp’s strong business profile with multiple businesses and a diversified earnings base. The Group’s key subsidiaries in various industries are viewed to have strong, entrenched positions in their respective sectors. While the Group is exposed to cyclical industries such as cement manufacturing, property development and construction, this is mitigated by the steady and predictable cashflow from its utilities division.
Armed with ample cash and manageable short-term debt obligations, YTL Corp’s liquidity position is deemed strong. RAM Ratings maintains a favourable view of YTL Corp’s financial flexibility, on the basis of its ability to tap its subsidiaries for additional dividends.
Whilst the Group’s credit fundamentals are moderated by its heavy debt load, we note that most (75%) of its debts are concession-related, ring-fenced and non-resource to YTL Corp. The Group’s debt burden of RM28.25 billion as at end-June 2011 translates into a gearing ratio of 2.25 times; its net gearing ratio stood at 1.28 times, supported by the Group’s enlarged cash pile. At company level, YTL Corp’s respective gearing and net gearing ratios (on an adjusted basis) had eased to 0.66 times and 0.38 times as at end-June 2011 (end-June 2010: 1.00 time and 0.74 times), following the cancellation of corporate guarantees extended for its acquisitions in Singapore, after the completion of its property division’s restructuring.
Meanwhile, YTL Corp remains acquisitive in its quest to further expand and diversify its earning base. While this could mean potential upside for its earnings, we are cautious about the additional operations, political, regulatory and currency risks that may be introduced, not to mention the added strain on its financial position, as its future investments could well entail debt-funding (wholly or partly). Acquisitions by its subsidiaries that necessitate corporate guarantees from YTL Corp may further strain its financials. In this context, we expect that YTL Corp will consider the impact of such acquisitions on the Group’s balance sheet and ensure that any such debt will be adequately supported by the returns generated.
Media contact
Chew Wei Li
(603) 7628 1025
weili@ram.com.my
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