International Reserves of BNM as at 31 January 2012 (by BNM)

The international reserves of Bank Negara Malaysia amounted to RM424.8 billion (equivalent to USD134.1 billion) as at 31 January 2012. The reserves position is sufficient to finance 9.6 months of retained imports and is 4.1 times the short-term external debt.



Bank Negara Malaysia
2012-02-09 17:00:00 2012-02-09 17:00:00

Malaysia records highest total trade (by NST)

KUALA LUMPUR: Malaysia recorded its highest total trade of RM1.3 trillion last year, up 8.7 per cent from 2010, said International Trade and Industry Minister Datuk Seri Mustapa Mohamed.

Read more: Malaysia records highest total trade - Top News - New Straits Times http://www.nst.com.my/top-news/malaysia-records-highest-total-trade-1.44293?localLinksEnabled=false#ixzz1lsMoP54B

He projected a growth of between five and six per cent for Malaysia's total trade this year.

The World Competitiveness Yearbook 2011 Report by the Institute for Management Development ranked Malaysia among the top five countries in terms of international trade after Singapore and Hong Kong, surpassing the United States of America, Switzerland, Australia, Canada and the United Kingdom.

Mustapa said exports expanded 8.7 per cent to RM694.55 billion last year while imports grew 8.6 per cent to RM574.23 billion.

Trade surplus rose 9.4 per cent to RM120 billion.

"This was the 14th consecutive year of trade surplus recorded by the country since 1998," Mustapa said.

He said rising demand for production inputs and consumer goods from Asian markets boosted this sector's contribution by 71.3 per cent to Malaysia's total exports.

Exports to Asia increased 11.2 per cent to RM495.19 billion in 2011.

"Within a span of five years, the share of exports to Asia grew 8 per cent from 63 per cent in 2007, in tandem with the region becoming the new economic growth centre of the world," Mustapa said here today when announcing Malaysia's Trade Performance for last year.

Manufactured goods were again the mainstay, accounting for 67.7 per cent share or RM470.3 billion of total exports, he said.

Mustapa also said China, for the first time, emerged as Malaysia's largest export market in 2011, with exports to the country growing 13.9 per cent to RM91.25 billion.

About 70 per cent of exports to China were manufactured goods and they mainly comprised chemicals & chemical products, rubber products, electrical and electronic products, manufactures of metal, processed food, and petroleum products.

Meanwhile, exports to Asean accounted for 25 per cent of the country's offtake with 5.8 per cent growth recorded in 2011 to RM171.54 billion.

Despite the uncertainties in the Eurozone, Malaysia's exports to all major markets in the European Union (EU), excluding the Netherlands and the United Kingdom, recorded an increase last year.

Exports to EU grew 4.7 per cent to RM71.95 billion with palm oil accounting for the largest export, recording an increase of 31 per cent to RM6.88 billion.

Mustapa said major growth markets in 2011 were Indonesia, Nigeria, Bangladesh, Saudi Arabia, Belgium and Germany where exports expanded by more than RM1 billion for each country.
-- BERNAMA

Read more: Malaysia records highest total trade - Top News - New Straits Times http://www.nst.com.my/top-news/malaysia-records-highest-total-trade-1.44293?localLinksEnabled=false#ixzz1lsMvpTM8

MARC AFFIRMS ITS AAAIS RATING ON AMAN SUKUK BERHAD’S RM10.0 BILLION ISLAMIC MEDIUM TERM NOTES PROGRAMME

Feb 3, 2012 -

MARC has affirmed its rating of AAAIS on special purpose vehicle Aman Sukuk Berhad’s (Aman) Islamic Medium Term Notes (IMTN) programme of up to RM10.0 billion with a stable outlook. The rating affirmation reflects the credit of the Government of Malaysia (GoM) as the single obligor and sublessee which will make contractual sublease rental payments under irrevocable sublease agreements between the GoM and Pembinaan BLT Sdn Bhd (PBLT) in respect of projects for the Royal Malaysia Police or Polis DiRaja Malaysia (PDRM). The repayment profile of each series of IMTN issued is structured to match defined sublease rental payments from the GoM to ensure full and timely servicing and repayment of the notes.

PBLT is a government-owned entity that was set-up to undertake the development of 74 projects comprising facilities and housing quarters for PDRM under the build-lease-transfer model in accordance with the principles of private finance initiatives (PFI). Aman was incorporated as a wholly-owned subsidiary of PBLT to facilitate the funding of the development through the IMTN issuances.

Under the transaction structure of the programme, PBLT will assign all sublease rental collections from the GoM for projects or sections of projects in the development to Aman. As the IMTNs can only be drawn down for projects or sections of projects that have been issued with certificates of completion and compliance, noteholders are insulated from construction risks. Each sublease payment represents an independent and irrevocable obligation by the GoM and is channelled directly into designated accounts without passing through PBLT’s bank accounts which eliminates comingling risk. MARC draws comfort from the fact that the sublease rental amounts under each IMTN series is adequate to cover principal and profit payments due during the tenures of the issues.

As at end-December 2011, PBLT has competed 41 projects and 20 sectional completions. Part of these completions have been assigned to Aman to issue IMTNs totalling RM2.265 billion as of date. MARC observes that PBLT has completed 55% of its mandated 74 projects as of end-2011 with full completion expected by 2015. Aman has met its first profit payment to sukuk holders in 2011 and is on track to meet its profit payments due in 2012.

The stable outlook reflects MARC's expectation of a supportive funding environment for the GoM and timely receipt of funding allocations going forward.

Contacts:
Ahmad Gazzara Czillich, +603-2082 2259/ gazzara@marc.com.my ;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my .

Bilateral Currency Swap Arrangement Agreement with the People's Bank of China (By BNM)

(See: http://www.bnm.gov.my/index.php?ch=8&pg=14&ac=2400&utm_source=twitterfeed&utm_medium=twitter) The People's Bank of China and Bank Negara Malaysia renewed its currency swap agreement today for a further term of three years, with its size increased to RMB180 billion / MYR90 billion. The original agreement was established on 8 February 2009 with an initial total size of RMB80 billion / MYR40 billion. This renewed currency swap agreement will further reinforce the financial cooperation between both economies and facilitate greater bilateral trade and investment.

Dubai debt saga continues to unfold (By IFN)

UAE: In a new twist to the Dubai debt saga, investment firm Dubai Group has reportedly offered to repay its creditors over a period of five-10 years in an effort to restructure its US$6 billion-worth of bank debt; after the emirate’s Supreme Fiscal Committee said no to a request for a US$2 billion cash injection.
According to reports, Dubai Group has told its 44 creditor banks; which have not received interest and profit payments on their loans since August 2010, that the government committee has walked out on talks to restructure its debt and that there will be no financial support from the government. The request for government cash first materialized in December, from members of the bank steering committee involved in the debt deal.

The roadblock has now led Dubai Group to offer secured lenders, owed US$3.2 billion in loans backed by assets, a payment of principal in five years; while partially secured and unsecured lenders will be paid over eight-10 years. The firm is expected to present its debt settlement deal at the end of February.
Meanwhile, Jebel Ali Free Zone (Jafza), another Dubai entity, is said to be in talks with Dubai Islamic Bank, the National Bank of Abu Dhabi and Standard Chartered on how to repay its AED7.5 billion (US$2 billion) Sukuk due in November this year.

Jafza could repay AED500 million (US$136.18 million)-worth of the Sukuk by itself, with the bulk of the debt expected to be rolled over via a syndicated financing and a new Sukuk.

The new Sukuk could be issued after September this year; although no banks have been mandated for the deal yet.

WEEKLY ECONOMIC COMMENTARY, 05 FEBRUARY 2012 (by DIFC)

(See: http://www.difc.ae/difc-blogs/weekly-economic-commentary-february-05-2012): The week started with a worldwide tumble when China's bourse reopened after a week with a 1.7% drop and Asian market sentiment was influenced by lower earnings. In general, just when you were thinking that the rebound in risky assets seen at the turn of the year is turning sour and the much touted January effect is over, markets recovered and ended the week on a positive note after the release of positive employment data in the US. Regional markets followed the global trend, with Saudi reaching a six-month high though the rally in Egypt was marred by recent riots. Among currencies, the dollar rose while its Asian counterparts gained on strong fund inflows. Oil prices were up last week; gold recorded its biggest one-day loss in over a month on Friday.
Global Developments

MARC DOWNGRADES SUKUK RATINGS ON AMPLE ZONE BERHAD TO D

Feb 3, 2012 -
MARC has downgraded its ratings on Ample Zone Berhad’s (Ample Zone) RM9.65 million Class B Sukuk Ijarah (sukuk) and RM75 million Class C sukuk to D from BB+IS and B-IS respectively. The downgrades reflect missed principal payments of RM84.65 million on January 27, 2012. MARC has received confirmation from the facility agent and trustee that no payments were made on the date. Ample Zone had earlier proposed to defer the principal repayments for three years to January 27, 2015. Sukukholders have not given their consent to the proposal yet and no event of default has been declared as of the date of this press announcement. Ample Zone is the special purpose vehicle that was established to issue the sukuk backed by four real estate properties.

Following the downgrades, MARC will accordingly cease to provide analytical coverage on Ample Zone.

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

MARC PLACES KINSTEEL BERHAD’S ISLAMIC DEBT PROGRAMME RATINGS ON MARCWATCH NEGATIVE

Feb 3, 2012 -

MARC has placed Kinsteel Berhad’s (Kinsteel) RM100 million Murabahah Commercial Papers/Medium Term Notes Programme (CP/MTN) and RM100 million Murabahah Medium Term Notes (MTN) Programme rated MARC-2ID /AID and AID respectively on MARCWatch Negative. The rating actions reflect Kinsteel group’s weakening financial measures that are likely to be exacerbated by part-debt funding of the full subscription of the RM280.0 million redeemable convertible unsecured loan stock (RCULS) to be issued by 37.3%-owned Perwaja Holdings Berhad (PHB).

As of date, Kinsteel has paid RM70.0 million for the subscription with the balance to be paid by early February 2012 from a combination of debt and internally generated funds. Kinsteel will at minimum incur cash outflow of about RM104.0 million to fund its portion of the RCULS subscription. Proceeds from the RCULS will be used to meet working capital requirements of PHB’s wholly-owned subsidiary, Perwaja Steel Sdn Bhd (Perwaja). PHB’s ability to service interest on the RCULS is expected to be derived from Perwaja which would also place additional strain on the group’s financial profile.

The challenging operating environment for the domestic steel sector has continued to impact Kinsteel group’s financial performance: on the heels of two consecutive years of losses, the group has registered a pre-tax loss of RM67.2 million for nine months ended September 30, 2011 (9MFY2011) (9MFY2010: pre-tax profit of RM0.3 million). At group and company level, Kinsteel’s debt-to-equity remains elevated at 1.13x (FY2010: 1.12x) and 1.85x (FY2010: 1.96x) respectively.

MARC is increasingly concerned on the ability of Kinsteel to service its financial commitments at a level commensurate with current ratings. The rating agency is undertaking its annual review of Kinsteel’s ratings, following which the MARCWatch Negative placement will be resolved within eight to twelve weeks.

Contacts:
Ahmad Gazzara Czillich, +603-2082 2259/ gazzara@marc.com.my;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.

MARC DOWNGRADES RATING ON PERWAJA STEEL SDN BHD'S RM400.0 MILLION MMTN PROGRAMME to A-ID; OUTLOOK NEGATIVE

Feb 3, 2012 -
MARC has lowered its rating on Perwaja Steel Sdn Bhd’s (Perwaja) RM400.0 million Murabahah Medium Term Notes (MMTN) programme from AID to A-ID. The outlook on the rating is negative. The rating action, which affects RM160 million of outstanding MMTNs under the programme, is premised on the prolonged decline in the steelmaker’s operating performance and the rating agency’s expectation of deterioration in its leverage and cash flow coverage credit metrics as a result of incremental debt to finance capital expenditure on an iron ore concentration and pelletizing plant.

While Perwaja’s strategic initiative to integrate backwards into iron ore processing would likely contribute to better longer-term performance, MARC believes that the uncertain industry conditions and ongoing pressure on Perwaja’s profitability will make it difficult for the steelmaker to improve its credit measures to a level commensurate with its previously assigned rating within the next 12 to 24 months. This view is reflected in the negative outlook that MARC is maintaining on the rating.

The rating also reflects Perwaja’s vulnerability to decreases in upstream steel consumption and lower steel prices, its domestic market revenue concentration and its sensitivity to raw material price fluctuations, as evidenced by its lacklustre sales and reported losses for two consecutive years and the nine month period ending September 2011 (9MFY2011). MARC also acknowledges the financial support from Perwaja’s ultimate holding company Kinsteel Berhad (Kinsteel) which, together with reduced working capital requirements at the steelmaker, have helped to limit the deterioration in Perwaja’s financial profile and allowed the company to exhibit improved cash flow coverage measures in a challenging operating environment.

Perwaja is engaged in the production of direct reduced iron (DRI), a steelmaking feedstock, and semi-finished long products such as billets, beam-blanks and blooms. In recent times, Perwaja’s profitability has been adversely affected by the negative impact of an incomplete pass-through of raw material cost increases to steel product prices as well as lower demand for billets and DRI. For 9MFY2011, average iron ore and scrap prices have risen by 18.2% (2011: USD182/MT vs 2010: USD154/MT) and 20.5% (2011: USD493/MT vs 2010: USD409/MT) respectively while selling prices for both DRI and billets have only increased by 11.9% and 11.5% (DRI - 2011: USD469/MT vs 2010: USD419/MT) (Billets - 2011: USD652/MT vs 2010: USD585/MT) respectively. The pressure on margins was further exacerbated by increases in electricity and natural gas costs, causing Perwaja to report pre-tax losses of RM54.0 million for 9MFY2011. Prior to that, the steelmaker also posted pre-tax losses of RM67.8 million in FY2010 and RM140.4 million in FY2009.

Perwaja expects to commission the first phase of the RM230.0 million iron ore concentration and pelletising plant in 2012. The plants, which will have a total combined annual production capacity of 2.4 million metric tonnes when both phases are completed, are expected to substantially meet the steelmaker’s internal requirement of iron ore pellets. Total project costs will be mostly funded by new borrowings. MARC understands that Perwaja is also proposing a joint venture between the company and the Terengganu state government to mine iron ore with a view to obtain a regular supply of iron ore. Perwaja is banking on the successful implementation of these strategic initiatives to reduce its dependency on imported iron ore and exposure to volatile iron ore prices, and to realise production cost savings. In MARC’s view, these strategic initiatives are subject to moderate execution risk.

Perwaja has recorded losses for the two consecutive years and the 9MFY2011. Its gearing, as measured by its debt to equity (D/E) ratio, continues to be elevated on the back of these losses notwithstanding a slight improvement in total debt levels and equity base following capital injections. The steelmaker has been generating positive cash flow from operations (CFO) since FY2009 as a result of lower working capital needs in a weaker revenue environment. MARC notes positively the fund raising exercise by immediate holding company Perwaja Holdings Berhad (PHB) to raise RM280.0 million through the issuance of redeemable convertible unsecured loan stocks (RCULS) to Kinsteel for the working capital needs of Perwaja group. As of January 4, 2011, Kinsteel has made a RM70 million RCULS subscription payment to PHB, the balance of RM210.0 million to be paid by early February 2012. The RCULS issuance will address MARC’s earlier concern over Perwaja’s heavy dependence on short-term trade financing to fund its working capital needs.

Against the uncertain outlook in the domestic steel industry and slower-than-expected rollout of infrastructure projects in the country as well as continuing cost pressures, a return to profitability is not expected in the near term. Meanwhile, Perwaja’s debt-funded investment programme will likely make the company increasingly free cash flow negative, and place the steelmaker at increased risk of deterioration in its financial profile. MARC believes that Kinsteel’s ability to provide further financial support to PHB and Perwaja beyond the full subscription of its allotted RCULS in the next 12 to 24 months is limited.

The rating outlook could revert to stable if Perwaja’s operating performance improves over the coming quarters, and the company continues to retain an appropriate liquidity profile in addition to the ability to address its refinancing needs reasonably in advance.

Contacts:
Ahmad Gazzara Czillich, +603-2082 2269/ gazzara@marc.com.my;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.

MARC AFFIRMS MARC-1/AA- RATINGS ON IJM CORPORATION BERHAD'S RM1.0 BILLION CP/MTN PROGRAMME

Feb 3, 2012 -
MARC has affirmed its MARC-1/AA- ratings on IJM Corporation Berhad’s (IJM) RM1.0 billion Commercial Paper/Medium Term Notes Programme (CP/MTN) with a stable outlook. The ratings action incorporates the satisfactory operating performance of its plantation, property and infrastructure segments, as well as the holding company’s broadly adequate liquidity and favourable financial flexibility. The higher year-on-year pre-tax profits posted by the three segments in the financial year ended March 31, 2011 (FY2011) have helped to offset the losses of its construction segment and weaker performance at its industrial segment. MARC notes that there has been an easing of the pressure on the holding company’s cash flow and liquidity in FY2011 on account of higher dividends received from subsidiaries, the repayment of advances by subsidiaries and lower investment outflows.

Constraining the ratings is the cyclicality of its construction and property development businesses, the heavy capital spending required for its Indonesia-based oil palm plantation operations, as well as the drag on profitability exerted by IJM’s construction and toll road operations in India.

IJM is the holding company of IJM group which has core activities in construction, property development, manufacturing and quarrying, infrastructure concessions and plantations. IJM which continues to maintain a strong competitive position in the domestic construction sector has shown good order book replenishment in recent quarters with a RM3.75 billion outstanding order book as of end-June, 2011, of which domestic orders accounted for RM3.04 billion or 81% (March 2010: RM3.62 billion and RM2.15 billion respectively). MARC notes the improved outlook for revenue and profitability for the construction segment as well as its pre-tax profit of RM21.6 million for the six months to September 30, 2011 (1HFY2012) after posting losses of RM79.2 million for FY2011. The weak performance in FY2011 was mainly due to the provisions made against contractual claims, recovery of receivables and project losses in some of the group’s overseas projects.

The increasing earnings contribution from IJM’s property segment and the near-term earnings visibility that is provided by contracted or unbilled sales of IJM Land Berhad (IJM Land) continue to provide support for the group’s financial profile. IJM Land’s strong brand name, long track record of operation, land bank quality and moderate project concentration continue to afford relative resilience to pressures in the operating environment. Take-up rates for IJM Land’s recent launches in the high-end segment have been weak, nonetheless, this is likely to be somewhat mitigated by better demand for the group’s medium cost residential property offerings. IJM’s property segment registered a significantly higher pre-tax profit of RM289.7 million in FY2011 (FY2010: RM171.9 million) owing in part to a one-off RM63 million gain from the disposal of its investment property, Aeon Bandaraya Melaka.

IJM’s plantation operations are undertaken by IJM Plantations Berhad (IJMP) which benefited from higher crude palm oil (CPO) prices in FY2011 which averaged RM2,760 per tonne (FY2010: RM2,246). The favourable maturity profile of its Malaysian plantations suggests that production should remain broadly stable and sustain operating cash flow generation. At the same time, MARC expects free cash flow generation to be constrained by the high levels of plantation-related capital expenditure for IJMP’s Indonesian plantations. IJMP has incurred a total of RM355.0 million on plantation development in respect of its Indonesian plantation operations up to end-March 2011; another RM500 million of plantation-related capital spending is budgeted for the next two years. The expansion will be partly funded by borrowings to be taken up at the subsidiary level. No meaningful revenue is expected from IJMP’s Indonesian plantation operations in the near term given that mature crops occupy only 563 ha of the total cultivated area of 13,606 ha (FY2010: 5,306 ha).

The group’s infrastructure segment was the third largest contributor of group earnings in FY2011, after property and plantations. Of the group’s three domestic toll road concessions, Besraya Highway and New Pantai Expressway (NPE) registered improved performance while Kajang-Seremban Highway (Lekas) registered losses due to weaker-than-expected traffic growth. The group holds joint venture interests of 35% to 50% in three Indian tollways and holds 100% interest in two tollways. The tollways are in various stages of operation. Two of the five tollways are still in ramp-up phase, having commenced full tolling only in mid-FY2010, which is reflected in part in the tollway portfolio’s adjusted pre-tax losses of RM8.6 million after adjusting for net foreign exchange gains. MARC expects the earnings contribution of IJM’s Indian tollway investments to remain muted in the near term and notes that the group has entered into share purchase agreements to acquire additional stakes in two of the remaining three older tollways in the group’s portfolio of Indian tollway investments. On a positive note, the group’s infrastructure concession investments in domestic ports, power plant in Andra Pradesh, India, and water treatment plant in Vietnam continue to provide positive recurring income.

At the operating holding company level, significantly higher dividend income of RM164.5 million was enough to offset the decline in construction revenue to RM112.8 million in FY2011. As at March 31, 2011, there was a slight increase in IJM’s gearing at company level; total borrowings were higher at RM1,078.6 million, translating into a higher debt-to-equity ratio of 0.27 times (FY2010: 0.25 times).

Compared to FY2010’s negative cash flow from investing activities of RM443.5 million, however, IJM recorded positive cash flow from investing activities of RM127.1 million as a result of net repayment of advances from subsidiaries and higher dividend receipts. MARC notes IJM’s debt maturities of RM100 million and RM400 in FY2013 and FY2014 respectively, in relation to which the holding company’s cash and cash equivalents of RM147.2 million and good access to bank and bond markets provide assurance of its ability to meet its maturing debt obligations.

The stable outlook incorporates MARC’s expectation that IJM group will exhibit broadly stable operating performance and that sound liquidity and adequate cash flow coverage measures will be maintained at the holding company level in the next 12 to 18 months. Downward rating pressure could emerge if IJM were to make large debt-funded investments or provide funding support for its underperforming subsidiaries or associates that could adversely affect its financial profile.

Contacts:
Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my;
Nisha Fernandez, +603-2082 2269/ nisha@marc.com.my;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.