RAM assigns AAA/Stable/P1 ratings to UMW’s RM300 million Islamic CP Programme

Published on 28 August 2013

RAM Ratings has assigned AAA/Stable/P1 ratings to UMW Holdings Berhad’s (“UMW” or “the Group”) RM300 million Islamic Commercial Papers/Medium-Term Notes Programme (2010/2027). Concurrently, RAM has reaffirmed the AAA/Stable rating of the Group’s RM2 billion Islamic Medium-Term Notes Programme (2013/2028). UMW is involved in the assembly and distribution of Toyota vehicles, trading of heavy and industrial equipment (e.g. Komatsu, Toyota, Case and Bomag), provision of oil and gas (“O&G”) services (with drilling and oil-field services as core offerings), manufacture of automotive parts, and distribution of lubricants (Pennzoil and Repsol).

The rating predominantly reflects UMW’s strong market position and solid financial profile. Through 51%-owned UMW Toyota Motor Sdn Bhd, the Group distributes the Toyota marque that leads the non-national segment of the Malaysian automotive industry. Toyota accounted for 16.8% of the total industry volume as at end-2012; its best-selling models are the Vios, Camry, Hilux and Hiace – the most popular in their respective segments. The Group’s associate, Perusahaan Otomobil Kedua Sdn Bhd (or Perodua), commands the lion’s share of A segment mini cars through the Viva.

The UMW Group is also a market leader in the domestic heavy- and industrial-equipment segments via best sellers Komatsu and Toyota, respectively. In the O&G sector, UMW and its local peers benefit from the policies of the Malaysian Government and oil giant Petroliam Nasional Berhad (“PETRONAS”), which are designed to promote and develop domestic O&G players. Given UMW’s ownership of jack-up drilling rigs that are typically used at relatively shallow depths, the Group is poised to benefit from the development of marginal oil fields.

UMW enjoys a robust financial profile. Despite an increasing debt load from the expansion of its O&G division, its adjusted gearing ratio has not exceeded 0.52 times in the last 5 years, supported by its strong retained earnings. Backed by healthy cash reserves, the Group’s net gearing ratio has been negligible. UMW also boasts a sturdy cashflow, generating more than RM1 billion of funds from operations (“FFO”) annually; this translates into an average adjusted FFO debt cover of at least 0.45 times over the same 5-year period – save for fiscal 2009, when its profit performance waned amid the global financial crisis.

UMW’s financial metrics remained healthy in 1Q FY Dec 2013. The Group’s gearing ratio came up to 0.48 times (end-December 2012: 0.46 times) following a slight increase in borrowings, the bulk of which was for the final payment of Naga 4 (one of its offshore rigs). However, UMW’s net gearing ratio remained manageable at 0.13 times. The Group’s heftier debt load resulted in a lower FFO debt cover of 0.45 times as at end-March 2013 (end-December 2012: 0.58 times).

Going forward, UMW’s capital expenditure (“capex”) is estimated to come up to about RM4 billion over the next 3 years. Of this, RM2.6 billion has been earmarked for the expansion of its O&G division. “While the capex of its other divisions is envisaged to be covered by internal cash, that of the O&G segment will rely on a mix of debt and equity. We understand that UMW is expected to maintain its gearing ratio at around 0.5 times,” explains Kevin Lim, RAM Ratings’ Head of Consumer & Industrial Ratings. To achieve this, the Group is likely to fulfil its funding needs through equity. “Should this fall through, UMW may scale down its budgeted O&G capex from 2014 onwards. In line with this, the Group’s adjusted FFO debt cover is anticipated to exceed 0.4 times over the next 3 years,” adds Kevin.

In the meantime, the rating is moderated by fierce competition within the automotive industry, UMW’s vulnerability to economic cycles and changes in regulatory policies, as well as franchise-renewal and foreign-exchange risks, particularly when it comes to the US dollar. The Group is also exposed to contract-renewal risk as it has to constantly bid for new O&G jobs and actively pursue the renewal of expiring contracts to sustain its top line. We note that UMW may not necessarily have secured service contracts for its newly acquired/constructed rigs by the time they are completed.

Media contact

Woon Tien Ern

(603) 7628 1040

tienern@ram.com.my

RAM Ratings reaffirms Genting Group’s ratings

Published on 28 August 2013

RAM Ratings has taken the following rating actions in respect of Genting Berhad’s (“Genting” or “the Group”) corporate credit ratings:

Rating Types	Rating Action	Ratings
National Ratings	Reaffirmed	AAA/Stable/P1
ASEAN Ratings	Reaffirmed	seaAAA/Stable/seaP1
Global Ratings	Reaffirmed	gA2/Stable/gP1

Concurrently, the AAA(s)/stable ratings of the RM2.0 billion Medium-Term Notes Programme (2012/2032) and RM1.60 billion Medium-Term Notes Programme (2009/2024) issued by the Group’s wholly-owned subsidiaries (Genting Capital Berhad (“Genting Capital”) and GB Services Berhad (“GB Services”), respectively) have been reaffirmed. The debt programmes are backed by full, unconditional and irrevocable corporate guarantees from Genting. As such, the enhanced ratings are based on the credit profile of the Group.

Genting is the sole licensed casino operator in Malaysia, and one of only 2 in Singapore. It is also one of the largest players in the United Kingdom’s (“UK”) gaming industry and the operator of a casino in the Bahamas and a video lottery terminal facility in New York in the United States. Besides its main business of leisure and hospitality (“L&H”), the Group has interests in power generation, oil-palm plantations, property development and oil and gas.

Genting’s credit profile is supported by its strong business position in the Malaysian, Singaporean and UK gaming markets. Underpinned by Resorts World Genting’s (“RWG”) monopolistic position in Malaysia and Resorts World Sentosa’s (“RWS”) part in the Singaporean duopoly gaming industry, the Group’s overall operating profit before depreciation, interest and tax margins of around 30%-40% are among the highest of gaming groups. With RWS and RWG located in different countries, Genting’s exposure to concentration risk is reduced. Consistent with most global gaming majors which have a significant presence in at least 2 markets, the establishment of casino operations in more than one country helps to alleviate the impact of unforeseen downturns in the macro-economic environment or the risk of adverse regulatory changes in any one country.

Notably, Genting possesses a strong cashflow-generating ability, robust balance sheet and ample liquidity. “The Group’s financial metrics are also superior to that of most global gaming operators,” observes Kevin Lim, RAM’s Head of Consumer and Industrial Ratings. Genting’s net cash position strengthened year-on-year (“y-o-y”), with its cash and cash equivalents standing at RM21.70 billion as at end-FY Dec 2012. Nevertheless, amid a more subdued showing by RWS and the Group’s plantation business, as well as an issuance of SGD2.30 billion of perpetual subordinated capital securities, Genting’s adjusted funds from operations (“FFO”) debt cover was lower y-o-y at 0.32 times in FY Dec 2012 (FY Dec 2011: 0.50 times). “Taking into account its planned capital expenditure (“capex”) and potential investments relating to Resorts World Las Vegas, Genting is expected to maintain its FFO debt cover ratio at approximately 0.25-0.3 times, with its net gearing ratio at around 0.1 times,” notes Lim. 

RAM remains cautious over the possible impact of further aggressive debt-funded expansions on Genting’s financial metrics. The Group is reportedly eyeing new markets such as Japan and South Korea. These possible ventures could entail sizeable capex and may require a longer gestation period than its previous projects. The Group’s current strong financial metrics could also change abruptly given the lumpiness of such investment. Competitive pressures and the challenging operating landscape of the new markets may also mean lower profitability compared with margins currently enjoyed by RWG and RWS. Nonetheless, we derive comfort from the Group’s strong operational performance in Malaysia and Singapore and its success in turning its operations in the UK around. The ratings are also moderated by Genting’s exposure to regulatory risk and the susceptibility of its L&H earnings to events that may affect the tourism industry. Unlike RWG, whose patrons mainly consist of local day-trippers, RWS and the Group’s London casinos depend more on tourists and premium players.

Media contact
Evelyn Khoo
(603) 7628 1075
evelyn@ram.com.my

The Philippines: War on red tape to boost FDI - OBG

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While the Philippines is one of the fastest-growing economies in South-east Asia, the country lags when it comes to foreign investment, particularly when compared to its regional neighbours.
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Outstanding US$1.2 billion Islamic debt restructuring creates strife for Saudi Telecom - IFN

Outstanding US$1.2 billion Islamic debt restructuring creates strife for Saudi Telecom

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SAUDI ARABIA: Saudi Telecom (STC) has requested for Deutcshe Bank, HSBC and China Development Bank to restructure its US$1.2 billion Islamic financing facility procured in 2011 for its Indonesian arm, Axis Telekom. Axis has recently reported poor financial performance in its operations resulting in the breach of several of its financing terms. However, the banks have declined STC’s proposal and is currently looking for alternatives, as the restructuring would incur losses of up to US$600 million for the lenders. Even a slight reduction of 10% would result in losses of about US$25 million each for both HSBC and Deutsche Bank. The parent company has pitched to the banks for a reduction scheme that reflects the financing’s real value of between US$600-800 million however the creditors have raised the issue of a ‘letter of support’ which obliges STC to honor the terms and agreement of the financing in full. As the debt was structured under English law, this allows the creditors to pursue legal actions against STC outside of the Saudi Arabian jurisdiction. HSBC and Deutsche Bank, which arranged a Shariah compliant Murabahah facility amounting to US$450 million for the Indonesian telco firm, bear approximately US$250 million in exposure to the financing while China Development Bank has US$350 million-worth of exposure. Other banks involved in the deal including Citigroup, are said to have an exposure of less than US$100 million, according to Reuters. STC, which acquired an 84% stake in Axis back in 2007, is currently negotiating to sell its ownership to rival telecommunications company, XL Axiata. Both companies are yet to reach an agreement on the valuation of Axis as STC seeks to generate between US$800 million to US$1 billion from the sales whilst Axiata is only willing to purchase the stake for a maximum amount of US$600 million. Nevertheless, in the event that these companies reach a consensus as to the valuation of Axis, the transaction would still be subjected to the approval of STC’s creditors.

Malaysian infrastructure developers continue to prefer Shariah compliant financing - IFN

Malaysian infrastructure developers continue to prefer Shariah compliant financing

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MALAYSIA: Malaysia-based property construction conglomerate Sunway has procured a financing of approximately US$150 million from two foreign financial institutions. The Commodity Murabahah Financing-I facilities were granted by Standard Chartered Saadiq and HSBC Amanah. According to a filing to the Malaysian bourse Bursa Malaysia yesterday, the company obtained US$75 million from each bank. The financing attained will be used to facilitate the partial repayment of the group’s existing debt. Late last month, the company managed to secure a US$67 million term financing facility from Oversea-Chinese Banking Corporation’s (OCBC). The facility acquired from OCBC’s Labuan branch was said to be used for the refinancing of the group’s prevailing Islamic term financing facility granted to its subsidiary, Sunway MUSC, by Maybank Islamic. Part of the US$67 million was also advanced to the construction of a new building in Monash University Malaysia campus by Sunway MUSC. Numerous Sukuk issuances have been made from the various industries in Malaysia including telecommunications, transport, water and power. Infrastructure development companies such as Sime Darby, United Malayan Land, Plus Highway, Syarikat Prasarana Negara and Lekas, like Sunway have also opted for Shariah compliant means of raising funds. This was done through Sukuk issuances as well as the many avenues of Islamic financing. Plus Highway last year issued RM30.6 billion (US$10 billion) in Sukuk, marking the largest Sukuk issuance in 2012. Sime Darby also issued a US$800 million Sukuk in May which was lauded and oversubscribed by 10 times. This bears a clear indication of the prevailing preference of Islamic financing in the Malaysian infrastructural development landscape.