EDL sukuk rating may be downgraded, says RAM

KUALA LUMPUR: RAM Ratings said ratings on a sukuk to fund the Eastern Dispersal Link (EDL) may be downgraded with prolonged negotiations between MRCB Lingkaran Selatan Sdn Bhd and the government, as the cash pile of the funding conduit MRCB Southern Link Sdn Bhd dwindles.

MRCB Lingkaran Selatan, the toll concessionaire holder, is still in discussions with the government on the termination of its concession agreement and the final settlement amount.

RAM Ratings has a BB3 rating on MRCB Southern Link’s RM845 million senior sukuk, which is now on its Rating Watch and a negative outlook.

As at Dec 31, 2017, MRCB Southern Link’s cash balances stood at RM17.45 million. Given the absence of toll revenue from Jan 1, 2018, RAM Ratings said the company’s cash pile will not be sufficient to settle the ensuing principal and profit payments on its senior sukuk.

RAM’s rating action follows the abolishment of toll collection at the 8.62-km EDL effective Jan 1, 2018, and the takeover of the expressway by the government.

MRCB Southern Link’s financial commitments will be supported by back-to-back payments from MRCB Lingkaran Selatan Sdn Bhd the toll concessionaire holder.

“We expect to resolve the Rating Watch once details on the proposed settlement and, by extension, repayment of the company’s sukuk obligations are made available to RAM,” RAM Ratings said in a statement today.

RAM estimates the drawdown of the company’s finance service reserve account bank-guarantee facility to alleviate cash shortfalls in honouring its financial obligations up to June 2018, barring any unexpected expenditure.

“Should negotiations on a final settlement be prolonged and without shareholder support or any other external liquidity support thereafter, the rating of the senior sukuk is expected to be downgraded in anticipation of a potential default by the end of this year.”

Mapping the sustainability landscape

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Global sukuk issuance to hover between US$70 Billion – US$80 billion in 2018

S&P anticipates total global sukuk issuance volume to hover between US$70 billion (RM280 billion) and US$80 billion (RM320 billion) this year. KUALA LUMPUR: Global sukuk issuance unlikely to retain strong performance this year due to tighter global liquidity conditions, mounting geopolitical risks and slow progress on the standardisation of Islamic finance products. These setbacks, according to Standard and Poor Global Ratings (S&P), would continue to hold the market back from its full potential. The rating agency, in a report titled Global Sukuk Market Outlook for 2018, anticipate total sukuk issuanceRead More

Malaysia weekly bond market updates 7 January 2018

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CIMB: Malaysia’s large IPOs expected to raise RM10b in first half of 2018

KUALA LUMPUR, Jan 4 — The large initial public offerings (IPOs) in Malaysia are expected to raise more than RM10 billion in the first half of this year, CIMB Investment Bank head of equity and capital markets and syndication for Asia Derek Lim…

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CIMB expects jumbo IPOs to raise RM10b in first half of 2018

KUALA LUMPUR: Large initial public offerings (IPO) are expected to raise over RM10 billion in the first half of this year, said CIMB Investment Bank Bhd managing director and head of ECM and Syndicate Asia, Derek Lim.

Lim said the hives of activity for IPOs in 2018 are in the infrastructure, consumer and financial services sectors.

“ACE Market, small caps and mid caps will continue to be robust this year as well with the overall conditions,” Lim said at a media briefing at the CIMB 10th Annual Malaysia Corporate Day here today.

CIMB Group Holdings Bhd chief executive Tengku Datuk Seri Zafrul Tengku Abdul Aziz (pix) expects 2018 to be an exciting year for investment banking, buoyed by a positive outlook and strong fundamentals that could boost the market such as better corporate earnings, expectations of RM90 billion infrastructure bond/sukuk issuances, as well as potential IPO and merger & acquisition activities.

CIMB is also optimistic that 2018 will be a good year for the group, as it is on track to achieve its T18 targets by year-end.

Tengku Zafrul is anticipating 2018 provisions for the group to be lower than last year’s, saying provisions for Malaysia is expected to go down this year, while provisions for Thailand, Indonesia and Singapore will improve.

In 2018, CIMB’s focus areas include new markets of Vietnam and Philippines; transformation of the Thai business, its commercial banking and data & digital outfit; as well as portfolio optimisation with the completion of its China Galaxy joint venture.

Tengku Zafrul said: “2018 is the final year for T18. All businesses have committed to give their all to achieve the T18 targets.”

Some of the T18 targets include a cost-to-income ratio of 50%, common equity tier 1 of 12%, return on equity of 10.5-11%, income contribution from consumer and commercial of 60%.

“Last year’s GDP growth was above expectations, this will definitely translate into stronger loan growth for 2018,” Tengku Zafrul said, adding that CIMB’s loan growth target for 2018 is 4-5%.

Despite this being an election year, he said, it will not have any impact on CIMB as the market has already factored this in, while strong fundamentals and economic growth should augur well for the banking sector.

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Mydin in better financial shape, sukuk rating backed by Danajamin guarantee: RAM Ratings

PETALING JAYA: RAM Ratings has reaffirmed its ‘AAA’ rating on Mydin Mohamed Holdings Bhd’s RM350 million Danajamin-guaranteed sukuk, saying the group is in better financial standing after addressing issues related to the Goods and Services Tax (GST) and disposing of loss-making ventures.

The agency said its rating is supported by the irrevocable guarantee by Danajamin and the group’s stand-alone credit profile. The rating denotes a superior capacity to meet its financial obligations.

RAM Ratings said besides Danajamin’s guarantee, Mydin’s standalone credit strength is further supported by its position as one of the largest locally owned grocery retailers.

Its credit profile was moderated by weak risk management and internal controls after having incurred substantial losses as a result of the difficulty in adopting appropriate pricing following the implementation of GST and anti-profiteering measures by the government, until the resolution of the issue in mid-FY March 2017.

Since the resolution of the pricing issues, the group’s core hypermarket and emporium segments have shown improved earnings and operating losses narrowed from RM75.94 million in FY March 2016 to RM5.85 million in FY March 17.

Despite disposing of its loss-making mini markets in April 2017 and discontinuing Kedai Rakyat 1 Malaysia (KR1M) stores in October 2017, Mydin still has an extensive domestic presence, with 75 outlets as at end-October 2017.

Mydin also has a strong following among its targeted, low to middle-income customers, and has carved a niche in the Muslim consumer segment by offering fully halal products and an array of locally manufactured goods.

“Given that loss-making mini markets and KR1M stores no longer weigh on Mydin Holdings’ performance, we envisage better earnings in FY March 2018. The sustainability of the group’s earnings will, nonetheless, depend on its ability to turn around or dispose of loss-making divisions. While the group plans to dispose of its premium outlets, this may take time due to the current weak consumer sentiment,” RAM Ratings said in a statement.

With gestation on newer stores and a lack of expertise in managing some outlets, the group’s mall, convenience store and premium outlet segments are expected to continue to demonstrate poor performances.

While operating performance improved, its financial metrics remained weak with its total adjusted debt increasing to RM2.07 billion as at end-March 2017 from RM1.86 billion in the same period of 2016, keeping its adjusted gearing ratio at a very weak 3.47 times.

Adjusted funds from operations debt coverage rose to 0.1 times for FY March 2017 from 0.06 times in 2016, mainly on account of stronger cash generation.
“Over the next three years, adjusted gearing and cashflow debt coverage are not anticipated to improve significantly as we foresee total adjusted debts to remain elevated,” RAM Ratings said.

Its liquidity stayed tight, with its cash and bank balances standing at RM63.84 million and RM135 million of unutilised banking facilities against a short-term debt of RM490 million as at end-June 2017.