Jun 18 2012
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MARC affirms its AAAIS(bg) and AAAIS(fg) ratings on Ranhill Power Sdn Bhd's RM800 million Sukuk Musharakah facility
The rating on Tranche 1 reflects the credit strength of an unconditional and irrevocable guarantee provided by Maybank Islamic Berhad (MIB) which is rated AAA/stable by MARC. The rating on Tranche 2 reflects the credit strength of an unconditional and irrevocable Kafalah Guarantee provided by Danajamin, on which MARC currently maintains an insurer financial strength rating of AAA/stable.
The proceeds from Ranhill Power's RM800 million sukuk issuance were onlent to its holding company, Ranhill Berhad (Ranhill), to be utilised to early redeem in full Ranhill's US$220 million bonds in June 2011. The source of repayment for Ranhill Power's sukuk issuance is expected to be mainly from all payments, including but not limited to dividends, from three key companies within the Ranhill group: SAJ Holdings Sdn Bhd (SAJH), which is involved in water supply services in Johor; and two independent power producers based in Sabah, Ranhill Powertron Sdn Bhd (RPI) and Ranhill Powertron II Sdn Bhd (RPII). On a standalone basis, the sukuk are subject to moderate credit risk given the fairly predictable utility-like earnings stream of the water distribution business of SAJH and power generation operations of RPI and RPII, tempered by Ranhill Power's dependence on residual cash flows provided by RPI and RPII. Ranhill Power's sukuk is structurally subordinated to the operational liquidity needs and debt service needs of the power generation project companies. Ranhill's modest credit protection measures remain a credit weakness. The holding company's recent financial results had also been impacted by significant impairment charges.
SAJH's operating licence will expire on June 30, 2012. MARC understands that Suruhanjaya Perkhidmatan Air Negara (SPAN) will propose a renewal of the licence to the Ministry of Energy, Green Technology and Water for two and a half years, ending December 2014. The proposal follows the performance review of SAJH's key performance indicators (KPI).
At the holding company level, Ranhill recorded an operating loss of RM45.4 million (FY2010: profit of RM167.8 million) for the 18-month period from July 1, 2010 to December 31, 2011 on the back of lower dividend income received and significant impairment charges of RM76.7 million related to its investments in Senai-Desaru Expressway and subsidiary Amona-Ranhill Consortium Ltd, which had terminated its housing project in Libya as a result of the social and political unrest in the country. While the debt-to-equity ratio decreased to 0.02 times as at December 31, 2011 (FY2010: 0.10 times), Ranhill's contingent liabilities have increased to RM971.4 million as at February 2012 (FY2010: RM484.3 million), in part due to the guarantee provided on the rated Sukuk Musharakah facility.
MARC notes Ranhill's nominal free cash flow profile for the 18 months to December 31, 2011 and its modest cash and cash equivalent holdings of RM1.2 million as at end-2011. Modest debt maturities in the next three years mitigate the lower level of projected liquidity build-up during these years. Principal redemptions on the sukuk commence only in 2013 with the first repayment of RM5 million, and remain relatively small until 2016. The MIB-guaranteed Tranche 1 portion has tenures up to eight years while the Danajamin-guaranteed Tranche 2 will have tenures ranging from nine to 15 years.
Sukukholders are insulated from downside risks related to the credit profile of Ranhill Power and Ranhill by the guarantees provided by MIB and Danajamin. Any change in the supported ratings or rating outlook would be primarily driven by changes in the credit strength of the guarantors.
Nisha Fernandez, +603-2082 2269/ email@example.com
Thian Chow Di, +603-20822280/ firstname.lastname@example.org
Rajan Paramesran, +603-2082 2233/ email@example.com
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