MARC has affirmed its ratings of MARC-1(fg)/AAA(fg) on Riverson Corporation Sdn Bhd's (Riverson) RM200 million CP/MTN facility with a stable outlook

MARC has affirmed its ratings of MARC-1(fg)/AAA(fg) on Riverson Corporation Sdn Bhd's (Riverson) RM200 million CP/MTN facility with a stable outlook. The affirmed ratings and outlook reflect the unconditional and irrevocable financial guarantee on the rated programme by Danajamin Nasional Berhad (Danajamin), which has a rating of AAA/stable from MARC. Danajamin's rating is underpinned by its important role as Malaysia's first and sole government-sponsored financial guarantee insurer, its solid capital base and ample liquidity.

Kota Kinabalu-based Riverson is currently undertaking its first property development project consisting of a 9-storey hospital with 200 beds and an adjoining 10-storey commercial block on a 5.4-acre site. The construction, which is at a nascent stage, is to be part-funded progressively from the proceeds from the issuance under the rated programme. As of date, RM50 million notes have been issued for the construction, which is expected to be completed by August 2014.

MARC notes that WCT Construction Sdn Bhd (WCT Construction), a member of one of the largest domestic construction groups, WCT Berhad (WCT), is undertaking the construction. Additionally, technical support for the hospital construction is provided by GEH Management Sdn Bhd (GEHM), a wholly-owned subsidiary of Parkway Holdings Limited, which owns one of the largest private hospital chains in the region. On completion of construction, GEHM will operate the hospital, tentatively known as Gleneagles Kota Kinabalu Medical Centre (GKKMC), under the ''Gleneagles'' brand. MARC views that the involvement of WCT as the main contractor and GEHM at the onset of the hospital construction would mitigate construction and completion risk associated with the project. 

Nonetheless, MARC remains concerned about the sales prospects for the commercial block given the moderating outlook for the domestic property sector. The commercial block, which has total gross development value of RM426.1 million, consists of retail space (247 retail lots), small office/home office (SOHO) (152 units), and office suites (30 units). The first phase of the commercial development has been launched with modest sales recorded thus far. As at November 30, 2012, SOHO and retail units registered take-up rates of 47% (or 72 units) and 27% (or 66 units) of launched units. MARC is of the view that sales would need to improve further to enable Riverson to meet its financial obligations under the rated programme and to fund its 62%-held subsidiary Jesselton Wellness Sdn Bhd's (Jesselton) progressive payments to acquire GKKMC. The progressive payments amounting to RM165 million are crucial to meet the balance of the construction cost of the hospital.

According to the latest unaudited accounts for the financial year ended June 30, 2012 (FY2012), Riverson recorded a loss of RM96,094 as the revenue of RM20.8 million from the sale proceeds from the commercial block was insufficient to cover the construction and other operating costs incurred. Revenue will progressively increase going forward as the sale and construction of the commercial block progresses. As at June 30, 2012, cash and cash equivalents stood at RM32.3 million, largely due to proceeds from borrowings under the rated programme.

Noteholders are, however, protected from any risks associated with the project and Riverson's credit standing by virtue of the financial guarantee provided by Danajamin.

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

MARC has affirmed its rating of AAA(fg) on Segi Astana Sdn Bhd's (Segi Astana) RM470.0 million Medium Term Notes (MTN) programme with a stable outlook

MARC has affirmed its rating of AAA(fg) on Segi Astana Sdn Bhd's (Segi Astana) RM470.0 million Medium Term Notes (MTN) programme with a stable outlook. The rating reflects the unconditional and irrevocable financial insurer guarantee provided by Danajamin Nasional Berhad (Danajamin). Danajamin is rated by MARC at AAA/Stable based on the financial insurer's strong capital position and claims-paying resources relative to its risk exposure, and its status as a government-sponsored entity.

Segi Astana, a joint-venture between WCT Land Sdn Bhd (WCTL) (70%) and Malaysian Airports Holdings Berhad (MAHB) (30%), is developing the RM530.3 million integrated complex under a 25-year build-operate-transfer concession. The development, which adjoins the new low-cost carrier terminal (LCCT)   known as Kuala Lumpur International Airport 2 (KLIA2), is largely funded by the proceeds from the MTN programme. Comprising a landside mall with net lettable area of about 350,000 sq ft and a transportation hub, the integrated complex is 78.3% completed as at end-November 2012 and is expected to be operational by May 2013 in tandem with the scheduled opening of KLIA2. MARC expects the project to continue to benefit from the credit strength of its two sponsors, namely WCTL and MAHB. WCTL is a wholly-owned subsidiary of WCT Berhad (WCT), one of the largest domestic construction players, while MAHB is a government-linked corporation which owns and operates most of the country's airports. WCT's wholly-owned subsidiary, WCT Construction Sdn Bhd, is undertaking the construction on a fixed-price contract basis.

MARC views the construction and non-completion risk during the project's construction phase to be mitigated by the WCT group's strong construction track record and a RM17.5 million completion guarantee provided by WCT as well as an undertaking to fund any construction cost overruns. MARC also notes that Segi Astana would be able to leverage on the expertise in property management within the WCT group during the operational phase of the project. Nonetheless, MARC opines that the primary challenge for Segi Astana will be to secure a strong occupancy level for the retail mall. As at November 30, 2012, 53.5% of retail space has secured commitment for tenancy, and this is expected to increase as the project nears completion. Given that rentals form the bulk of its revenue, high occupancy levels are necessary for the company to be able to meet its financial obligations and maintain adequate debt service coverages. As such, lower-than-expected occupancy levels for the retail mall remain a key risk for the project during its operational phase.

MARC believes that key drivers of the project's ability to yield projected revenue and debt service coverages are the retail mall's passenger penetration rate and the airport's ability to sustain high passenger traffic levels. The volume of passenger traffic would depend on the competitiveness of air carriers serving the LCCT. Short-term variations in passenger traffic, meanwhile, can be caused by economic downturns, security threats and fuel cost spikes.

Projected debt service coverage of 2.15 times (x) to 5.08 times (x) assumes initial rent of RM22 per square foot and 70% occupancy in the first year of operations, 80% in the second and 90% throughout the concession period, in addition to the ability to increase rental rates by 10% every three years.  MARC considers the project's financing structure as appropriate for the project's risk profile and exposure to weaker-than-expected tenant demand. Segi Astana is required to maintain its paid-up share capital at no less than RM106.06 million upon or prior to the project reaching commercial operations, which corresponds to 20% of the project's construction costs. The rating agency notes that MAHB will contribute its 30% capital contribution in kind equal to lease rentals payable by Segi Astana to the airport operator for the use of the project site.

Noteholders are insulated from the concession's construction and operation phase risks by the   unconditional and irrevocable guarantee provided by Danajamin. 

Contacts: Ngiam Tee Wei, +03-2082 2268/ teewei@marc.com.my; Taufiq Kamal, +03-2082 2251/ taufiq@marc.com.my; Rajan Paramesran, +03-2082 2233/ rajan@marc.com.my 

December 28, 2012

International Bank of Azerbaijan to raise US$150 million via Islamic syndicated financing in 2013 (By IFN)

International Bank of Azerbaijan to raise US$150 million via Islamic syndicated financing in 2013

Daily Cover

AZERBAIJAN: The International Bank of Azerbaijan (IBA) is keen to strengthen its hold as not only the country’s biggest lender, but also as the leading local provider of Islamic finance. The bank is looking to raise US$150 million via an Islamic syndicated financing facility early next year; as it targets to the double its Islamic asset from US$60 million to US$120 million by the end of 2013, according to Behnam Gurbanzada, its head of Islamic banking. It is currently discussing the syndicated financing plan with several GCC banks; and expects to complete the deal in April next year after awarding the mandate for the deal in January. Its Islamic banking growth plans also sees the bank targeting US$500 million in Shariah compliant assets in 2015, with help from its subsidiaries, said Behnam in a Reuters interview. In an interview with Islamic Finance news in August this year, Behnam said that IBA has submitted an application to Qatari authorities for a subsidiary in the country, while it also has a unit in Russia and a presence in the UAE. “We are planning the establishment of a common chain of IBA subsidiaries and representative offices. If we are successful then we can set up an Islamic investment and development bank of CIS countries,” he said.

MARC has affirmed its ratings of MARC-1ID/AAID on Tele-Flow Capital Sdn Bhd's (Tele-Flow Capital) RM90 million Murabahah Underwritten Notes Issuance (MUNIF)/Islamic Medium Term Notes (IMTN) Facility (Senior Notes) and concurrently upgraded the rating on the RM10 million Junior IMTN Facility (Junior Notes) to AA-ID from A+ID. The outlook on the ratings is stable

MARC has affirmed its ratings of MARC-1ID/AAID on Tele-Flow Capital Sdn Bhd's (Tele-Flow Capital) RM90 million Murabahah Underwritten Notes Issuance (MUNIF)/Islamic Medium Term Notes (IMTN) Facility (Senior Notes) and concurrently upgraded the rating on the RM10 million Junior IMTN Facility (Junior Notes) to AA-ID from A+ID. The outlook on the ratings is stable. The rating action affects RM15 million outstanding notes, consisting of RM10 million Senior Notes and RM5 million Junior Notes.

Tele-Flow Capital is a wholly-owned funding vehicle of Tele-Flow Corporation Sdn Bhd (Tele-Flow Corp) and was incorporated to issue the notes to finance the construction/acquisition of telecommunication towers or structures in Kedah. The rating affirmation reflects the credit quality of the assigned rental revenue from creditworthy telecommunication companies (telcos) as the source of repayment of the notes. The stability and predictability of the rental revenue are underpinned by a 10-year license agreement between Yiked Bina Sdn Bhd (YBSB), a joint-venture company between Tele-Flow Corp and the Kedah state government that holds exclusive rights to construct and manage telecommunication towers in the state, and the three telcos, namely Celcom Axiata Bhd (Celcom), Maxis Broadband Bhd (Maxis) and DiGi Telecommunications Sdn Bhd (DiGi). YBSB has assigned the rental payments from the telcos to Tele-Flow Corp, which in turn has assigned the same to Tele-Flow Capital.

Rental payments from the 136 completed telecommunication towers are directed into a trustee-controlled collection account, following which 60% of the total rental payment will be transferred into a sinking fund account to meet the debt service obligations on the notes with the balance channelled into an operations account for maintenance works. Tele-Flow Capital maintained comfortable covenant headroom with respect to its finance service cover ratio (FSCR) which stood at 29.4 times (x) as at December 31, 2011, well above its minimum covenant of 1.5x. The one-notch upgrade of the Junior Notes is premised on the improved debt service coverage, which is expected to strengthen over the remaining tenure of the facility, particularly in view of the unlikely event of further debt being issued before the expiry of the Senior Notes in 2013.

Tele-Flow Capital has not drawn down on the rated facilities to finance the construction or acquisition of any new towers since the last rating review, and the company has indicated that it is not expected to issue anymore notes under the facilities. As such, the rental stream from the existing 136 towers will fund debt service on the outstanding notes of RM15 million. MARC notes that the aggregate balance in the designated accounts stood at RM8.1 million as at end-November 2012, which coupled with projected annual net operating cash flow of about RM12 million, will enable the company to adequately address repayments of RM10 million Senior Notes in May 2013 and RM5 million Junior Notes in May 2014. In addition, the company's net operating cash flow will be augmented by cash and cash equivalent holdings of above RM8 million after debt repayments at the end of each year for the remaining tenure of the debt.

The stable outlook reflects the expectation of stable and timely lease payments from the telcos for the financed towers.

Contacts: Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my; Sonia Lim, +603-2082 2267/ sonia@marc.com.my; Sharidan Salleh +603-2082 2254/ sharidan@marc.com.my.

December 27, 2012

[This announcement is available in the MARC corporate homepage at http://www.marc.com.my]

RAM Ratings reaffirms AA3/P1 ratings of Naim’s Islamic debt issues with negative outlook

Published on 24 December 2012

RAM Ratings has reaffirmed the respective AA3 and P1 ratings of Naim Holdings Berhad’s (“Naim” or “the Group”) RM500 million Islamic Medium-Term Notes Programme (2010/2025) and RM100 million Islamic Commercial Papers Programme (2010/2017); the outlook on the long-term rating is maintained at negative. Naim is mainly a property-development and construction group based in Sarawak. It also holds a 34%-stake in Dayang Enterprise Holdings Berhad, a listed provider of oil and gas support services.

On 13 April 2012, we revised the outlook on Naim’s long-term rating to negative from stable, based on its weakened financial profile as a result of the slow progress of contracts at hand, the absence of notable new contracts and deferred property launches. The Group’s top line and pre-tax profit for FYE December 2011 (“FY Dec 2011”) plunged 32.8% and 56.7% y-o-y, respectively. Coupled with a heavier debt load, Naim’s gearing as at end-December 2011 escalated to 0.45 times (end-December 2010: 0.17 times) while funds from operations (“FFO”) debt coverage for the year fell into deficit (FY Dec 2010: 0.71 times).

Since then, Naim has shown improvements in replenishing its order book and significant progress in property development. While its recovery is anticipated to gain momentum, the Group’s financial metrics for FY Dec 2012, particularly its FFO debt coverage, is expected to remain weak at below 0.2 times. Looking ahead, there are considerable uncertainties surrounding the pace of recovery which is dependent on the sustained sales of Naim’s properties and the award of new contracts. In the construction segment, the Group faces increasing competition which has resulted in slimmer margins. In addition, Naim plans to venture into large-scale mixed developments, expand its investment property portfolio and embark on land acquisitions which may entail more borrowings. We understand the Group is considering equity injection to ease debt requirements, however, this will be subject to market conditions. Meanwhile, we remain concerned over the significant change in Naim’s key management; failure to attain equilibrium could affect its overall business direction. As such, the negative outlook reflects RAM Ratings’ view that the Group still faces challenges in the near term to further improve its debt-protection measures. The long-term rating will face downward pressure if Naim’s financial metrics, especially its debt coverage levels, do not improve to levels commensurate with an AA-rating.

Meanwhile, the ratings continue to be supported by Naim’s strong track record in the timely delivery and execution of construction projects, secured largely from the government of Malaysia (“GoM”) and the Sarawak State government. We opine that its past performance positions it well to clinch new projects under various development initiatives undertaken by the GoM. Naim is also one of the largest and well-known property developers in Sarawak with a sizeable land bank. It currently has around 2,600 acres of land remaining, which is expected to sustain it for the next 8 years. The low holding costs of the Group’s land bank allow it to price its products competitively and defer launches in accordance with market conditions.

That said, Naim’s current businesses are still largely based in Sarawak, exposing it to geographical concentration risk. As such, any upside potential from its 2 main divisions is limited by the performance of the State’s property and construction markets. In addition, Naim remains a relatively small player among its similarly rated peers. The Group is also susceptible to risks associated with the inherently cyclical construction and property sectors, e.g. fluctuations in raw material prices, the country’s economic performance and keen competition.

Media contact

Ben Inn

(603) 7628 1024

ben@ram.com.my