Sunday, September 3rd, 2017


S&P and Moody’s affirm ratings, outlook for Axiata

PETALING JAYA: S&P Global Ratings and Moody’s Investors Service have both affirmed their ratings and outlook on Malaysia-based wireless services provider Axiata Group Bhd, following the company’s acquisition of tower assets from Pakistan Mobile Communications Ltd (Jazz) for US$940 million (RM4 billion).

“We expect the tower assets to be earning before interest tax depreciation and amortisation (ebitda)-accretive and neutral to our leverage expectations for Axiata in 2018 and beyond. We estimate the company’s pro forma ratio of debt to ebitda to be 1.9x in 2018, slightly better than our downgrade trigger of 2.0x. However, we believe the rating headroom remains limited with no scope for significant debt-fuelled acquisitions or material shareholder distributions,” S& P said in a note published last Thursday. It has a BBB+ rating and stable outlook on Axiata.

It said although the acquisition increases the share of revenue from higher-risk economies for the group, it believes tower assets are a passive infrastructure play and should provide a steady stream of income.

“We also expect the prospects for tower companies in Pakistan to improve because telecom incumbents are increasingly looking at tower-sharing arrangements to optimise costs,” S&P said.

It believes Axiata will continue to seek opportunities to augment its tower assets, within its stated debt tolerance levels of a ratio of gross debt to ebitda of 2.5 times.

Moody’s on the other hand expects the acquisition to be immediately ebitda accretive, providing an uplift of around 6-7% to Axiata’s audited and reported consolidated revenue and ebitda for year-end 2016, according to management. It has a Baa2 rating and stable outlook o the group.

“Axiata has also announced that there will be no change to its dividend policy, which – when combined with a substantially debt-financed acquisition – continues to point to an aggressive financial policy. Still, we expect the group will remain prudent in balancing its shareholder initiatives and debt-holder protection measures, and remain committed to maintaining reported leverage at or below 2.3x,” says Annalisa DiChiara, a Moody’s vice-president and senior credit officer.

Moody’s expects Axiata’s revenue for 2016-2017 to grow by mid-single-digit percentages, supported by the steady performance of XL Axiata Tbk (PT) (Ba1 positive) in Indonesia, as well as continued solid growth at Robi Axiata Ltd in Bangladesh and Dialog Axiata PLC in Sri Lanka. This will help offset the weaker operating performance of Celcom, stemming from intense competition in Malaysia.

Moody’s also expects Axiata’s cash flows to stay strained in the next one to two years, reflecting the company’s progressive dividend payout policy and elevated capital expenditure (capex). Capex is likely to increase to around RM6.6-RM7.0 billion in 2017, as the company upgrades its network.

However, stable earnings from diversified revenue sources, solid market positions and strong relationships with the government of Malaysia (A3, stable) will continue to support its rating.

Moody’s said downward pressure could arise should competition intensify further in any of its key markets, such that its key subsidiaries report materially declining margins or borrow aggressively to fund capex or additional acquisitions, resulting in consolidated adjusted debt/ebitda remaining above 2.5-3.0x over the next six to 12 months.

The rating may experience upward pressure, should Axiata’s fundamental credit profile continue to strengthen, particularly if Axiata reduces its consolidated adjusted debt/ebitda below 2.0x and increases retained cash flow/debt above 35-40%.

Trump hints at exiting free trade pact with South Korea

HOUSTON: US President Donald Trump said on Saturday he will discuss the fate of a five-year-old US-South Korean free trade deal with his advisers this week in a move that could see him pull out of the accord with a key American ally at a time of heightened tensions on the Korean peninsula.

Trump made his remarks to reporters while visiting hurricane-hit Houston a day after he spoke with South Korean President Moon Jae-in and struck a deal allowing Seoul access to longer-range missiles as well as a potential arms sale.

The US-Korea Free Trade Agreement (Korus), hammered out by Trump’s Democratic predecessor Barack Obama, has been a frequent target for Trump, who in earlier interviews with Reuters threatened to withdraw from what he called an unequal deal in which Washington runs a goods trade deficit of almost US$28 billion (RM120 billion) with Seoul.

“It is very much on my mind,” Trump said in Houston when asked if he is talking to advisers and will do something about the pact this week.

The US Chamber of Commerce said in an email to members that it and other business groups “have received multiple reports” that the Trump administration is prepared to notify South Korea of its intent to withdraw from Korus tomorrow, and possibly sooner.

The largest US business lobby urged member companies to have senior executives call the White House and other administration officials to tell them not to proceed, and to enlist Republican governors in the effort.

“This is an all hands on deck effort,” the group said in a memo seen by Reuters that recalled another emergency campaign in April to persuade Trump not to withdraw from the North American Free Trade Agreement (Nafta).

Trump agreed to renegotiate Nafta’s terms but on Aug 27 renewed his threat to scrap the 23-year-old trade pact, even as US, Canadian and Mexican trade negotiators were preparing for this weekend’s second round of talks.

Trump is also likely to face resistance from within his own administration to any move to quit Korus. National Economic Council director Gary Cohn and other senior administration officials had opposed a unilateral Nafta withdrawal.

Trump’s comments on Saturday came amid a standoff over North Korea’s missile and nuclear tests. North Korea sharply raised regional tension this week with the launch of its Hwasong-12 intermediate-range ballistic missile, which flew over Japan and landed in the Pacific.

Washington wants to change the South Korea deal to help cut its trade deficit with Asia’s fourth-largest economy.

South Korean and US officials began talks about possible revisions to the agreement on Aug 22 but failed to agree on how to move forward. US Trade Representative Robert Lighthizer, South Korean Trade Minister Kim Hyun-chong and the trade pact’s joint steering committee participated in a one-day video conference that ended without a decision on the next steps for possible revisions.

The pact was initially negotiated by the Republican administration of President George W. Bush in 2007, but that version was scrapped and renegotiated by Obama’s administration three years later.

Trump has blamed the accord on his 2016 Democratic presidential election opponent, Hillary Clinton, who as Obama’s secretary of state promoted the final version of the agreement before its approval by the US Congress in 2011.

Pulling out of Korus would mark the latest step taken by Trump to abandon the type of international trade agreement that had exemplified world economics for decades.

Days after taking office in January, Trump formally abandoned the Trans-Pacific Partnership, an ambitious accord brokered by Obama that would have joined a dozen nations from Canada and Chile to Australia and Japan in a complicated array of trade rules. – Reuters

US petrol prices continue to rise, key refineries restart ops

NEW YORK: US petrol prices continued to rise yesterday amid fears of shortages, despite the restart of several key refineries on the US Gulf Coast that had been crippled by Hurricane Harvey.

The storm took down a quarter of US oil refining capacity and lifted average petrol prices by more than 20 cents since Aug 23.

Yesterday, average retail prices rose again, to US$2.621 (RM11.19) a gallon, with weekly increases hitting 18% in Georgia and 19% in South Carolina, according to motorists advocacy group AAA.

The increases came despite the resumption of operations at several refineries and pipelines. Over the weekend, ExxonMobil Corp began restarting the country’s second-largest oil refinery, the 560,500 barrels per day (bpd) Baytown, Texas, unit, while Phillips 66 said it was working to resume operations at its 247,000 bpd Sweeny refinery and at its Beaumont oil and fuels terminal.

The restarts followed an announcement from Valero Energy Corp on Friday that it was increasing production at its Corpus Christi, Texas-area refineries.
The hurricane battered Texas before weakening to a tropical storm and inundated the region with torrential rains and flooding.

Some pipelines also restarted over the weekend, assuaging worries over the ability of refineries to get the crude oil they need to operate. Magellan Midstream Partners said it had resumed operations on Friday on its BridgeTex and Longhorn crude oil pipelines, which transport around 675,000 bpd of West Texas crude to East Houston.

Still, the majority of Texas ports remained closed to large vessels, limiting discharge of imported crude, and the Colonial Pipeline, which hauls more than 3 million bpd of refined products including petrol, diesel and jet fuel from the Gulf Coast to the populous US Northeast was also partially closed. – Reuters

Nafta negotiators seek ways to retain Mexico’s energy reforms

MEXICO CITY: US, Canadian and Mexican negotiators are zeroing in on ways to enshrine Mexican President Enrique Pena Nieto’s sweeping energy reforms into a modernised North American Free Trade Agreement (Nafta), Mexico’s chief negotiator said on Saturday.

The 2014 reforms wrung control of the country’s oil and gas sector from state hands, opening it up to private investment, and incorporating them into the 23-year-old Nafta is seen as a way to help preserve them for the long term.

“We’re working in this sense, analysing all of the elements that need to be included in the energy discussion to reflect the reform Mexico established,” Mexico’s chief trade negotiator, Kenneth Smith, said on Saturday after a bargaining session in the second round of Nafta modernisation talks.

Smith, speaking to reporters as he walked side-by-side with his counterparts John Melle of the US and Steve Verheul of Canada, added that negotiators would “look for mechanisms that allow us to integrate ourselves in a positive way in the energy sector”.

Trade negotiators from the three nations are working through the weekend in Mexico City to present more proposals to revamp Nafta, an accord that underpins more than US$1.2 trillion (RM5.12 trillion) in annual cross-border trade.

When Nafta was enacted in 1994, Mexico’s energy sector was closed and Pena Nieto’s reforms ended a decades-long monopoly for national oil company Pemex and ensured competitive oil auctions. Incorporating them into Nafta would help shield them from any future governments that may want to reverse them.

Trade experts both in the US and Mexico have said that increasing energy trade and investments through Nafta would help reduce the US$64 billion US trade deficit with Mexico that irritates US President Donald Trump, partly through increased US gas and oilfield equipment sales to Mexico.

Pena Nieto, in his annual address to the nation on Saturday, defended free trade and young migrants in the US, saying his government would not accept insults against “national dignity” from Trump’s administration. – Reuters

Common ground in short supply as China hosts BRICS

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Ghost cities haunt stability dream in far west China

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Slow Greek recovery brings no relief to struggling workforce

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Crude Palm Oil Weekly Report – 31 August 2017

Malaysian palm oil futures pulled back from last week’s gains and traded lower, weighed down by expectations that production in August would rise slightly and profit taking by traders would occur ahead of the long holiday weekend. The benchmark crude palm oil futures (FCPO) contract dropped 1.64 per cent to RM2,706 on Wednesday, which was […]

Malaysia weekly bond market report 3 September 2017

US Treasuries rallied along with other safe-haven assets such as gold and Japanese yen following the missile test that was fired by North Korean over Japan, heightening geopolitical tensions and uncertainties in the global financial markets. The MGS yield curve bull-flattened with the yields at the longer end of the curve eased up to three […]

China’s Belt and Road: What’s in it for Malaysia?

China’s Belt and Road initiative (BRI) is perhaps the country’s biggest initiative to date in an effort to energise the global economy via projects spanning 65 countries by building massive infrastructure revolving around transport and energy. Proposed by China’s President Xi Jinping in 2013 for the joint economic development between the countries and regions involved […]