FW: MARC ASSIGNS FINAL RATING OF AAAIS(fg) TO MASTEEL’S RM130.0 MILLION GUARANTEED SUKUK IJARAH PROGRAMME

 

 

 

P R E S S  A N N O U N C E M E N T

 

FOR IMMEDIATE RELEASE

 

MARC ASSIGnS FINAL RATING OF AAA_IS(fg) TO MASTEEL'S RM130.0 MILLION GUARANTEED SUKUK IJARAH PROGRAMME

 

MARC has assigned a final rating of AAA_IS(fg) to Malaysia Steel Works (KL) Bhd's (Masteel) RM130.0 million Sukuk Ijarah Programme. The outlook on the rating is stable.

 

Upon review of the final documentation of the issuance, MARC is satisfied that the terms and conditions of the Sukuk have not changed in any material way from the draft documentation on which the earlier preliminary rating of AAA_IS(fg) /Stable was based.

 

For full details of the assigned rating, please see Masteel's preliminary rating announcement on October 26. The complete analysis is provided in the Credit Analysis Report which is available on MARC's website at www.marconline.com.my.

 

Contacts: Hari Vijay, +603-2717 2937/ harivijay@marc.com.my; Wan Abdul Muiz Wan Abdul Ghafar, +603-2717 2939/ muiz@marc.com.my.

 

November 23, 2018

 

 

 

 [This announcement is available in MARC's corporate website at http://www.marc.com.my]

--- DISCLAIMER ---

This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

 

© 2018 Malaysian Rating Corporation Berhad

 

IMPORTANT NOTICE:
The information contained in this email and/or any attachment hereto is strictly confidential and privileged. If you are not the intended recipient, and/or have received this email in error, you must not copy, disseminate or disclose the contents of this message and/or any attachment to any other person. Please notify the sender and delete this message and any attachment from your system. Malaysian Rating Corporation Berhad ("MARC") accepts no liability in respect of prohibited and unauthorised use by an unintended addressee or recipient. Any opinion, view or other information in this message and/or any attachment hereto which does not relate to the official business of MARC is that of the individual sender. Although this email and/or any attachment is believed to be free of any virus or other defect which may affect any computer system into which it is received and opened, it is the responsibility of the recipient to ensure that it is virus-free and MARC accepts no responsibility for any loss or damage arising in any way from the use thereof.

 

FW: AAM News: Cambridge Associates’ head of Asia Alvin Tay resigns

 

 

 

If you cannot view this mail please click here.   Latest News  |  Magazine  |  Events  |  Best of the Best Awards  |  E-Magazine   Latest News 23 November 2018 Cambridge Associates' head of Asia Alvin Tay resigns Going Places: Cambridge Associates Asia managing director Aaron Costello will take over Mr. Tay's responsibilities   Securitised debt Debt Markets: The US$13 trillion-plus securitisation market is one of the largest categories in the US fixed income space Read More New World China to sell US$2 billion green bonds Environmental: The proceeds are to finance the company's two residential and commercial projects in the Great Bay Area Read More AAM new product roundup New Products: A compilation of recent new initiatives and product launches in the Asia Pacific region Read More Monthly Top Ten South Korea pension market a key driver of alternative investments Australia's AMP sells insurance unit to Resolution Life for A$3.33 billion Schroders appoints Amy Cho as Hong Kong CEO Southeast Asia private equity, venture capital investments surge 83% in second quarter Maybank AM, Schroders unveil strategic partnership for Malaysia market Demographics, fundamentals buoy self-storage prospects in Asia Pacific Rajeev Mittal joins Fidelity International as managing director for Asia Pacific ex-Japan Banker Azura Azman is top candidate to head Malaysia bourse, sources say Morgan Stanley closes Thailand private equity fund at US$440 million Malaysia extends tax breaks for Islamic, retail bond issuance   Coming Up         As per the Guidance on Direct Marketing issued by the Office of the Privacy Commissioner for Personal Data in Hong Kong which took effect on April 1, 2013, we would like to inform you that we intend to continue sending you promotional emails such as newsletters, new promotions and product updates. If you do not wish to receive such emails, please contact us at news@asiaasset.com. For enquiries please contact us at (852) 2547-7331.     Unsubscribe to this mailing list COPYRIGHT © 2018 ASIA ASSET MANAGEMENT. ALL RIGHTS RESERVED. 1701 Singga Commercial Centre, 148 Connaught Road West, Hong Kong   Tel: (852) 2547-7331   E-mail: enquiries@asiaasset.com

 

 

FW: RAM Ratings reaffirms Pendidikan Industri YS’s sukuk rating

 

Published on 21 Nov 2018.

RAM Ratings has reaffirmed the enhanced AA1(s)/Stable rating of Pendidikan Industri YS Sdn Bhd's (PIYSB or the Company) RM150 million Bai' Bithaman Ajil Islamic Debt Securities (2008/2022) (BaIDS). The rating reflects our view that PIYSB's debt-servicing ability in respect of the BaIDS remains substantially enhanced by the demonstrated and expected support from the Selangor State Government (SSG or the State). In February 2011, the Selangor State Executive Council approved a RM205.5 million allocation for all repayments on the BaIDS between 2012 and 2022. The State has been settling all the principal and profit payments due on behalf of PIYSB since January 2012, including those falling due in January 2019, which have been credited into the finance service and redemption account (FSRA). 

The SSG's intention of supporting PIYSB is detailed in a strongly worded Letter of Support (LoS). Although not an outright guarantee, the document states that the SSG will ensure – either through equity, loans, grants and/or other means – that PIYSB fully and promptly meets its financial obligations under the BaIDS throughout the tenure of the facility. PIYSB provides educational services via Universiti Selangor (Unisel), and is wholly owned by the State via Menteri Besar Selangor (Pemerbadanan) (MBI). Given its role in supporting the State's private higher-education objectives and based on RAM's recent interaction with senior SSG officials, we believe that the State will continue extending financial assistance to PIYSB if needed. 

Without the LoS, PIYSB's stand-alone credit profile is very weak. In fiscal 2017 and 1H fiscal 2018, Unisel remained in the red with its average student population below its break-even level of 12,700 students. The university's average student population stood at a respective 9,370 and 9,640 in 2017 and 1H 2018, despite efforts to increase its enrolment. As such, PIYSB has not been able to generate sufficient cashflow to meet its current operational requirements and financial payments. 

In view of its role in supporting the State's higher-education objectives and the keenly competitive environment, a significant upward revision in Unisel's fees is deemed unlikely despite its hefty costs. We expect PIYSB to remain mired in losses and continue relying on financial assistance from the SSG to meet its operational cashflow requirements and financial payments.

The dispute between PIYSB and its previous hostel operator, Jana Niaga Sdn Bhd (JNSB), was resolved in December 2017. PIYSB has agreed to pay JNSB a settlement amount of RM19.75 million, besides taking over JNSB's RM51.70 million of liabilities to Bank Pembangunan Malaysia Berhad, which will be borne by the State. In September 2017, the State approved an allocation to the Company for the repayment to BPMB, from 2017 to 2021. In the meantime, the Malaysia Anti-Corruption Commission's (MACC) investigations on the alleged misappropriation of payments by MBI to JNSB (in August 2017) have yet to be concluded. 
 
PIYSB is highly leveraged. As at end-June 2018, its gearing ratio had deteriorated to 1.32 times (end-December 2017: 0.80 times) amid its higher debt level following the settlement of its dispute with JNSB. As at the same date, PIYSB held RM35.15 million of cash and bank balances against RM25.00 million of short-term debts. The Company's liquidity position is expected to stay vulnerable as it relies on timely requests for financial assistance and fund disbursements from the SSG. 

Analytical contact
Aw Wei Xuan 
(603) 7628 1198
weixuan@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

_________________________________________________________________________________________________________________________________________________________________

 

 

FW: MARC AFFIRMS SUNWAY’S RATINGS BUT REVISES OUTLOOK TO STABLE FROM POSITIVE

 

 

 

P R E S S  A N N O U N C E M E N T

FOR IMMEDIATE RELEASE

 

MARC AFFIRMS SUNWAY'S RATINGS BUT REVISES OUTLOOK TO STABLE FROM POSITIVE

 

MARC has affirmed its ratings of MARC-1/AA- and MARC-1_IS(cg)/AA-_IS(cg) on Sunway Berhad's (Sunway) RM2.0 billion Commercial Papers/Medium-Term Notes (CP/MTN) programme and Sunway Treasury Sukuk Sdn Bhd's (STSSB) RM2.0 billion Sukuk programme. STSSB's Sukuk programme carries an Al-Kafalah guarantee from Sunway. The affirmation is premised on Sunway Group's expected total debt level of RM10 billion to RM11 billion in the next two years.

 

The ratings outlook has been revised to stable from positive. The revision reflects the increasing headwinds the Sunway Group faces in the property and construction sectors given the continuing subdued performance of the domestic property market and downward revision in government-related infrastructure contracts. Sunway Group's increased borrowing levels have also added to the rating agency's concerns. Meanwhile, the affirmed ratings are underpinned by Sunway Group's well-established businesses in property development, property investment, construction, healthcare and leisure-related operations that provide diversified sources of revenue and earnings. Its strong market position in the property and construction sectors would enable the group to weather challenges in these sectors. The group also retains sizeable cash generating ability and a moderate financial structure.

 

These factors notwithstanding, MARC expects the group to adhere to tighter financial discipline, particularly on using debt to strengthen its market position or undertake opportunistic transactions.  Sunway Group has since established sizeable programmes under which the group can substantially increase its borrowings. In this regard, the rating agency understands that group borrowings are expected to increase to RM11 billion by end-2020 (1H2018: RM9.0 billion) to fund its working capital requirement and capex. Its gross and net debt-to-equity (DE) stood at about 1.04x and 0.44x at end-1H2018 with net DE expected to increase to 0.48x by end-2018. However, any further rise in borrowings without concomitant measures to address debt metrics weakness could lead to downward rating pressure.

 

For 1H2018, the property development division's revenue and profit before tax (PBT) declined by 46.3%   y-o-y and 32.0% y-o-y to RM221.0 million and RM70.2 million, reflecting the continued weak sentiment in the sector. However, for 2H2018, the property division is expected to improve its performance; as at August 2018, property sales of RM1.27 billion have already surpassed the full year sales for FY2017 by 9.7%. Its unsold inventory remained at a moderate level, consisting of high-end properties.

 

Sunway Group's construction order book stood lower at RM5.8 billion as at end-August 2018 (October 2017: RM6.7 billion), though it is still sizeable. Despite the tough operating environment for contractors, operating profit margins for its construction division have remained relatively stable at around 10.0%. While PBT rose 3.5% y-o-y to RM89.7 million in 1H2018, the ongoing slowdown in the construction sector may weigh on the division's performance over the medium term.

 

The group's other business segments are likely to continue to cushion the impact from the slowdown. Sunway Group aims to add five more hospitals to its portfolio by 2023. While MARC recognises that diversification provides stability to Sunway Group's cash flow, the timing of the group's potentially 70% debt-funded expansion into the healthcare segment could contribute to a weakening in Sunway's credit metrics. Due to gestation period, these expansion plans are expected to result in continued negative free cash flow for the group. 

 

Cash flow from operations (CFO) has remained healthy, generating an average of RM519.5 million between 2014 and 2017; for 1H2018, CFO stood at RM225.0 million. Nonetheless, given the increased level of borrowings, CFO interest cover has continued to decline to 1.7x and is expected to fall to about 1.5x by end-2020 if borrowing levels increase to RM11 billion. MARC also notes that a mismatch in funding in 2017 and 1H2018 poses some short-term liquidity risks to the group.

 

The full Credit Analysis Report will be made available on MARC's website at https://www.marconline.com.my/car/index.

 

 

Contacts: Wan Abdul Muiz, +603-2717 2939/ muiz@marc.com.my; Hari Vijay, +603-2717 2937/ harivijay@marc.com.my,

 

November 21, 2018

 

[This announcement is available in MARC's corporate website at http://www.marc.com.my]

----   DISCLAIMER    ----

 

This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

 

© 2018 Malaysian Rating Corporation Berhad

 

IMPORTANT NOTICE:
The information contained in this email and/or any attachment hereto is strictly confidential and privileged. If you are not the intended recipient, and/or have received this email in error, you must not copy, disseminate or disclose the contents of this message and/or any attachment to any other person. Please notify the sender and delete this message and any attachment from your system. Malaysian Rating Corporation Berhad ("MARC") accepts no liability in respect of prohibited and unauthorised use by an unintended addressee or recipient. Any opinion, view or other information in this message and/or any attachment hereto which does not relate to the official business of MARC is that of the individual sender. Although this email and/or any attachment is believed to be free of any virus or other defect which may affect any computer system into which it is received and opened, it is the responsibility of the recipient to ensure that it is virus-free and MARC accepts no responsibility for any loss or damage arising in any way from the use thereof.

 

FW: MARC AFFIRMS AA-IS RATING ON DUKE 3’S RM3.64 BILLION SUKUK

 

 

P R E S S  A N N O U N C E M E N T

 

FOR IMMEDIATE RELEASE

 

MARC AFFIRMS AA-_IS RATING ON DUKE 3'S RM3.64 BILLION SUKUK

 

MARC has affirmed its rating of AA-_IS on toll concessionaire Lebuhraya DUKE Fasa 3 Sdn Bhd's (DUKE 3) RM3.64 billion Sukuk Wakalah with a negative outlook. Wholly owned by Ekovest Berhad, DUKE 3 is undertaking the design, construction, financing, operations and maintenance of Setiawangsa-Pantai Expressway (SPE), a 32-km elevated dual two-lane carriageway. The toll road project is being built under a concession agreement with the Government of Malaysia ending August 5, 2069.

 

The negative outlook reflects the rating agency's concerns over the continued regulatory uncertainties on the direction of the toll industry. In this regard, matured toll concessionaires which are able to generate sufficient cash flows and maintain healthy cash balance levels to meet financial obligations without substantial reliance on government compensation would be in a better position to weather any regulatory adjustments.

 

The affirmed rating is underpinned by the sufficient construction progress and adequately structured sukuk repayment profile that accommodates the ramp-up of traffic on the expressway. As at September 30, 2018, SPE's actual overall progress remains steady, standing at 42.40% against the planned progress of 42.35%, according to the independent consulting engineer. The rating agency also notes that any cost arising from delays would be passed to the engineering, procurement and construction (EPC) contractor through the back-to-back liquidated ascertained damages (LAD) arrangement of RM10,000 per day of delay under the fixed-sum contract. An irrevocable and unconditional bank guarantee of RM184.5 million (5% of EPC costs) further mitigates the construction cost overruns.

 

As at October 31, 2018, DUKE 3 has incurred RM1.46 billion on the project while total designated account balances stood at RM2.74 billion. In respect of land required for construction of the expressway, as at September 30, 2018, DUKE 3 has utilised RM210.6 million for land acquisition purposes. As sizeable government funding of up to RM350 million has been set aside for land purchases, financial risk associated with land acquisition has been minimised. DUKE 3 expects to commence work on the remaining lots once they have taken formal possession by end-2018. MARC understands that DUKE 3 is waiting for the disbursement of the reimbursable interest assistance (RIA) amounting to RM460 million from the government. As at October 2018, DUKE 3 has only received its first payment of RM100 million from the government in July 2017.

 

Under the latest base case cash projections, DUKE 3's projected minimum and average pre-distribution finance service cover ratios (FSCR) with cash balance stand at 2.24 times and 2.61 times during the sukuk tenure. The revised projections assume the disbursement of the remaining RIA of RM460 million in 1H2020, GST savings of RM56.2 million from the construction costs and higher interest income of RM88.5 million, among others. The sensitivity analysis indicates that the project cash flow can withstand up to a 13% construction cost overrun or 12 months' delay in the commencement of tolling operations before breaching the FSCR covenant of 1.50 times in 2023 and 2026. It also reveals that DUKE 3 is vulnerable to a breach in the equity-to-capital ratio of 16% by 2023.

 

The projections also show that in the event the initial traffic growth is around 23% during the ramp-up period (2020-2024), the traffic growth rate would subsequently have to register 6.5% per annum against 3.6% of operating expense growth to break even. Correspondingly, if the highway meets its projected initial traffic growth of 26% during the ramp-up period, DUKE 3 would break even with a traffic growth rate of 4.7% during the post ramp-up period (2025-2039).

 

 

Contacts: Ati Affira Kholid, +603-2717 2941/ affira@marc.com.my; David Lee, +603-2717 2955/ david@marc.com.my.

 

November 14, 2018

 

 

[This announcement is available in MARC's corporate website at http://www.marc.com.my]

--- DISCLAIMER ---

This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

 

© 2018 Malaysian Rating Corporation Berhad

 

 

 

IMPORTANT NOTICE:
The information contained in this email and/or any attachment hereto is strictly confidential and privileged. If you are not the intended recipient, and/or have received this email in error, you must not copy, disseminate or disclose the contents of this message and/or any attachment to any other person. Please notify the sender and delete this message and any attachment from your system. Malaysian Rating Corporation Berhad ("MARC") accepts no liability in respect of prohibited and unauthorised use by an unintended addressee or recipient. Any opinion, view or other information in this message and/or any attachment hereto which does not relate to the official business of MARC is that of the individual sender. Although this email and/or any attachment is believed to be free of any virus or other defect which may affect any computer system into which it is received and opened, it is the responsibility of the recipient to ensure that it is virus-free and MARC accepts no responsibility for any loss or damage arising in any way from the use thereof.

 

FW: MARC AFFIRMS AA-IS RATING ON SOUTHERN POWER’S SUKUK WAKALAH OF UP TO RM4.0 BILLION

 

 

P R E S S  A N N O U N C E M E N T

 

FOR IMMEDIATE RELEASE

 

MARC AFFIRMS AA-_IS RATING ON SOUTHERN POWER'S SUKUK WAKALAH OF UP TO RM4.0 BILLION

 

MARC has affirmed its AA-_IS rating on Southern Power Generation Sdn Bhd's (Southern Power) Sukuk Wakalah of up to RM4.0 billion with a stable outlook.

 

The affirmed rating primarily reflects Southern Power's predictable operational cash flow on the back of an availability-based tariff structure under a 21-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB) (AAA/Stable). The absence of demand and fuel price risks offered under the PPA support the project fundamentals. The rating also considers the strong commitment from its shareholders, primarily through a two-way undertaking to address any shortfall in capital contributions from either of its two shareholders. The stable outlook incorporates MARC's expectation that the construction will progress on schedule and stay within the allocated budget.

 

Southern Power is a 51:49 joint venture between TNB and SIPP Energy Sdn Bhd (SIPP), and was established to develop a 2x720-megawatt (MW) combined-cycle gas turbine power plant in Pasir Gudang, Johor. The scheduled commercial operation date (SCOD) for both units is July 1, 2020. The company has awarded the power plant development to an experienced consortium led by Taiwan-based CTCI Corporation (CTCI) and General Electric Energy Products France SNC (GE) under a fixed sum engineering, procurement and construction (EPC) contract. MARC opines that the involvement of the original equipment manufacturer GE under the EPC arrangement would enable technical and plant design problems to be minimised. Coupled with CTCI's prior experience in Malaysian power plant construction, the implementation and execution risks of the project are largely mitigated. As at September 25, 2018, the power plant project recorded actual physical progress of 58.7% against the planned progress of 53.8%.

 

Construction and completion risks are further moderated by performance guarantees, warranties, liquidated damages (LD) for any delays and a contingency sum equivalent to 4.0% of the EPC cost of RM3,018.7 million, at an exchange rate of RM4.30/US$1.00. Southern Power has undertaken a hedging arrangement to address foreign exchange exposure as the EPC cost incorporates a US dollar portion of US$505.2 million. The total project cost is funded by a debt-to-equity mix of 80:20. The equity injection comprises ordinary share capital and redeemable preference shares (RPS) amounting to RM916.3 million in aggregate of which RM506.3 million from the subsequent RPS subscription will be used to repay the junior facility of the same amount. Any unpaid junior financing obligations post-COD will be backed by a rolling guarantee provided by the shareholders. In addition, TNB covenants to maintain at least 51% direct or indirect interest in Southern Power throughout the sukuk tenure.

 

During the operational phase, Southern Power will receive capacity payments to cover its fixed operating expenses, financing obligations and shareholders' returns, all of which are subject to an unplanned outage rate of below 4% and a contracted average availability target of at least 94%. A key concern surrounding the project is the short operational track record of the gas turbine. In this regard, an independent technical advisor has assessed and opined that the operations and maintenance (O&M) risk mitigation measures for the project are adequate considering the availability of O&M performance guarantees and the long-term service agreement with the original gas turbine supplier. The plant's O&M will be carried out by TNB's wholly-owned subsidiary, TNB Repair and Maintenance Sdn Bhd under a 21-year O&M agreement (OMA).

 

Southern Power's average pre-distribution financial service cover ratio (FSCR) with cash balance throughout the sukuk tenure is projected at 1.94 times. The FSCR profile is relatively flat except in 2H2020 and 1H2021 (first operating period), due to uneven capacity rate financials (CRF). During the first operational period, Southern Power would need to rely on its cash buffer to meet its financing obligations as the Tier-1 CRF of 69% is lower than the Tier-2 CRF. The first sukuk principal repayment will commence in 2022. The projections also assumed that Southern Power will fully redeem its outstanding junior financing through proceeds from the RPS subscription at COD.

 

Under MARC's sensitivity analysis, the project demonstrates moderate resilience against stressed scenarios including breaches of heat rate requirements and lower plant capacity. The risk of a severe plant underperformance is mitigated by the OMA's LD provisions as well as insurance protection. While completion delay would heighten cash flow mismatches, LD payments from the EPC contractor provide adequate cover for any potential loss of operational cash flow and delay penalty under the PPA. Consistent with its rated peers, the requirement to maintain an FSCR of 1.50 times post-distribution would ensure that Southern Power exercises prudence in its liquidity management, particularly during periods of plant underperformance.

 

 

Contacts: Ati Affira Kholid, +603-2717 2941/ affira@marc.com.my; David Lee, +603-2717 2955/ david@marc.com.my.

 

November 14, 2018

 

 

[This announcement is available in MARC's corporate website at http://www.marc.com.my]

--- DISCLAIMER ---

This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

 

© 2018 Malaysian Rating Corporation Berhad

 

 

IMPORTANT NOTICE:
The information contained in this email and/or any attachment hereto is strictly confidential and privileged. If you are not the intended recipient, and/or have received this email in error, you must not copy, disseminate or disclose the contents of this message and/or any attachment to any other person. Please notify the sender and delete this message and any attachment from your system. Malaysian Rating Corporation Berhad ("MARC") accepts no liability in respect of prohibited and unauthorised use by an unintended addressee or recipient. Any opinion, view or other information in this message and/or any attachment hereto which does not relate to the official business of MARC is that of the individual sender. Although this email and/or any attachment is believed to be free of any virus or other defect which may affect any computer system into which it is received and opened, it is the responsibility of the recipient to ensure that it is virus-free and MARC accepts no responsibility for any loss or damage arising in any way from the use thereof.

 

FW: MARC AFFIRMS KUWAIT FINANCE HOUSE (MALAYSIA)’S FINANCIAL INSTITUTION RATINGS OF AA+/MARC-1

 

 

P R E S S  A N N O U N C E M E N T

FOR IMMEDIATE RELEASE

 

MARC AFFIRMS KUWAIT FINANCE HOUSE (MALAYSIA)'S FINANCIAL INSTITUTION RATINGS OF AA+/MARC-1

 

MARC has affirmed Kuwait Finance House (Malaysia) Berhad's (KFH Malaysia) long-term and short-term financial institution (FI) ratings of AA+/MARC-1 with a stable outlook. The FI ratings are based on Malaysia's national rating scale.

 

KFH Malaysia's long-term FI rating has been notched down from its parent Kuwait Finance House KSC's (KFH) long-term FI rating of AAA, premised on MARC's expectation of continued strong parental support to its wholly-owned banking subsidiary. KFH's rating, in turn, is based on the assumption of a very high likelihood of support from the Kuwaiti government given its high systemic importance as the second-largest bank in Kuwait. KFH is majority-owned by the Kuwaiti government.

 

The stable ratings outlook assumes no change in the ownership structure of KFH and KFH Malaysia and that parental support from KFH will be forthcoming, if needed.

 

As at end-June 2018, KFH Malaysia's asset size stood at RM9.3 billion, a modest growth of 1.2% from end-2017 following a sharp decline from RM10.8 billion as at end-2016. The decline was largely a result of KFH Malaysia shedding its low-quality assets, particularly in the corporate segment, as part of a transformation programme it undertook in 2017. The programme also included rebalancing KFH Malaysia's financing portfolio to focus on the retail financing segment. Gross financing stood at RM5.9 billion as at end-June 2018 (2016: RM6.9 billion), of which household financing comprised 51.3%, up from 36.9% in 2016. The retail financing book, which is forecast to grow around 10% in 2018, is expected to be the key growth driver in the bank's financing portfolio going forward.

 

MARC notes that the bank's asset quality has improved with total impaired financing declining to RM368.8 million as at end-June 2018 (2016: RM478.1 million). The improvement came on the back of recoveries and lower new impairments during the period, leading to higher financing loss coverage of 91.8% as at end-June 2018 (2016: 77.2%). The gross impaired financing (GIF) ratio reduced to 6.3% (2016: 7.0%), although it remained higher than the Islamic banking industry average of 1.3%.

 

The rating agency observes that KFH Malaysia's capitalisation has remained strong, providing some buffer against any further asset quality weakness. Common Equity Tier 1 (CET1) capital and total capital ratios rose to 23.4% and 31.1% (2016: 20.3%; 27.7%) as risk-weighted assets declined in tandem with the bank's lower financing base.

 

For 2017, KFH Malaysia's operating performance rebounded to register a net profit of RM5.2 million from a net loss of RM28.3 million in the previous year, mainly on the back of lower impairments and higher non-financing income. Net financing income fell due to lower gross financing and a decline in the net financing margin to 1.74% from 1.88%.

 

For 1H2018, net financing income rose y-o-y, benefiting from a hike in the overnight policy rate during the period. Net profit rose to RM33.0 million in 1H2018 (1H2017: RM27.3 million). The bank's funding profile remained volatile given its dependence on wholesale deposits which accounted for 91.6% of the bank's total deposits as at end-June 2018. This risk is mitigated by its holding of substantial liquid assets as reflected by its liquidity coverage ratio of 176.8%, higher than BNM's minimum requirement of 90% for 2018.

 

KFH Malaysia continues to leverage on its parent's business expertise and benefits from the well-recognised KFH franchise. KFH is the second-largest bank in Kuwait with total assets of KWD17.1 billion (equivalent to RM227.8 billion), accounting for 26.5% of the Kuwaiti banking system as at end-June 2018. A potential merger with Bahrain-based Ahli United Bank BSC (AUH), which had total assets of about KWD10.0 billion as at end-2017, could further strengthen KFH's business franchise and market presence. KFH's capital adequacy remained strong with Tier 1 and total capital ratios standing at 16.0% and 17.8% as of end-2017; its asset quality has continued to improve, with the GIF ratio declining to 2.86% as at end-2017 (2016: 2.90%).

 

 

Contacts: Douglas De Alwis, +603-2717 2965/ douglas@marc.com.my; Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my

 

November 14, 2018

 

[This announcement is available in MARC's corporate website at http://www.marc.com.my]

----   DISCLAIMER    ----

 

This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

 

© 2018 Malaysian Rating Corporation Berhad

 

 

IMPORTANT NOTICE:
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