Chellam Plantations' Sabah sukuk gets AAA(fg)/Stable rating from RAM

RAM Ratings has reaffirmed the AAA(fg)/Stable rating of the RM150 million 10-year tranche (2016/2026) under Chellam Plantations Sabah’s RM300 million Guaranteed Sukuk Murabahah Programme (2016/2033). The enhanced rating is premised on the irrevocable and unconditional guarantee extended by Danajamin Nasional (rated AAA/Stable/P1), the company said.

Chellam Plantations is an investment-holding company, with subsidiaries involved in the cultivation of oil palms and the milling of palm oil. Independent of the financial guarantee, its standalone credit profile is constrained by its relatively small planted area of 13,799 ha which can only contribute 30% of its processing capacity. Based on its capacity of 871,200 metric tonnes (MT) per annum, the group depends on processing fresh fruit brunches (FFBs) purchased from third parties in addition to its own FFBs. This strategy allows the group to pursue incremental profits despite thin margins. The Group’s oil extraction rate (OER), which stood at 22% in 2019, remains comparable to those of bigger regional players, RAM Ratings said.

While Chellam Plantations’ FFB output declined to 104,609 MT (4.1%) and 91,351 MT (12.7%) year-on-year in 2019 and 1H20, strong FFB growth momentum is expected in the medium term due to a large proportion of young and prime palms (overall weighted-average age: 11 years). Such palms constituted 77% of its total planted area as at end-December 2019.

Chellam Plantations’ production cost for crude palm oil (CPO) decreased to RM1,512 per MT in fiscal 2019 (fiscal 2018: RM1,650), thanks to lower average cost for external FFB purchases, in line with softer CPO prices. Lighter expenses and a higher mill utilisation rate boosted its operating profit before depreciation, interest, and tax (OPBDIT) and OPBDIT margins to a respective RM51.31 mil and 15.36% in fiscal 2019, despite lower revenue (-6.7%) of RM334.02 million.

"We anticipate Chellam Plantations’ topline to improve in fiscal 2020, underscored by healthier average CPO prices," RAM Ratings said in a statement.

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RHB's Multi-Currency Islamic Medium-Term Note Programme gets AA2 rating from RAM

RAM Ratings has given an AA2 rating to RHB Bank’s proposed RM10 billion Multi-Currency Islamic Medium-Term Note Programme. The rating reflects the facility’s ranking as a senior unsecured obligation of the company. The company also rated RHB Islamic Bank AA₂/Stable/P1/-, and its RM5 billion Subordinated Sukuk Murabahah Programme (2014/2034)AA₃/Stable/-/-.

The financial institution ratings of the Group’s core subsidiaries, RHB Islamic Bank Berhad and RHB Investment Bank Berhad, are equated to those of RHB Bank, considering their strategic importance to the latter, RAM Ratings said.

"Growth at RHB Islamic has gained significant traction in recent years, propelling its ascension to third position in the Islamic banking space in terms of gross financing. The proportion of Islamic financing had risen to 39.6% of the Group’s domestic loans as at end-June 2020 (end-December 2016: 25%), a tad shy of its target of reaching 40% by the end of 2020. RHB Islamic believes that this target remains achievable," said the ratings firm.

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Quill Retail Malls' sukuk has a negative outlook: RAM Ratings

RAM Ratings has reaffirmed the respective ratings of Quill Retail Malls’ (QRMSB) RM350 million sukuk murabahah (2017/2024), with a negative outlook. The transaction is secured against Quill City Mall (QCM), a 777,967 sq ft shopping mall in Malaysia with accessibility from Medan Tuanku Monorail Station.

Ratings ranged from AA₁/Negative to A₃/Negative. The negative outlook reflects concerns over potential liquidity stress on the transaction in view of the interruptions to QCM’s turnaround plans, that have now been exacerbated by the Movement Control Order (MCO) to halt the spread of COVID-19. While the RM50 million bank guarantee (BG) facility and six-month coupon reserve can at present adequately support the transaction up to its legal maturity date, weaker-than-expected cashflow and/or collections owing to curtailed businesses during various phases of the MCO, in the absence of further funding injections from the shareholder, will deplete the liquidity facility.

The reaffirmation of the ratings is premised on the available collateral support provided by the property that remains commensurate with the respective ratings.

The property’s occupancy rate is expected to improve to 72% by end-2020, from 61% as at end-December 2019. New anchor tenants include JDX Presto Concept Store, the largest cashless concept store in the ASEAN region – the outlet is JDX Presto’s first online-to-offline store in Malaysia, Orange Esports and UniKL.

RAM Ratings stressed on the market uncertainties and unprecedented events and said hings could change. "Going forward, the property’s performance is envisaged to stay uncertain and volatile in view of the potential variation of newly committed leases, due to the MCO. QCM’s financial performance will also be affected by planned rental relief for tenants in 'non-essential' sectors, although the actual quantum and duration of relief is still in the works," the company said.

"Additionally, 11% of QCM’s total gross rental income is derived from turnover rent, which is vulnerable to weak retail sales post-MCO, given subdued consumer sentiment. Based on our sensitivity analysis, the property’s NPI is likely to fall into negative territory in FY December 2020, assuming two months of rental relief is provided to all tenants, which will necessitate further shareholder support."

NPI stands for net property income.

HSBC Amanah Malaysia gets AAA/Stable/P1 rating as a financial institution

RAM Ratings has reaffirmed HSBC Amanah Malaysia’s (the bank) AAA/Stable/P1 financial institution ratings and the AAA/Stable rating of its RM 3 billion Multi-Currency Sukuk Programme (2012/2032).

The reaffirmation is premised on HSBC Amanah’s strategic role as the Islamic banking arm of HSBC Bank Malaysia (rated AAA/Stable/P1) and one of HSBC Holdings’s two global “amanah” or Islamic banking hubs. The bank is operationally integrated with HSBC Malaysia and leverages on the HSBC Group’s global franchise, international network and expertise. Parental support is envisaged to be readily available when needed.

As such, the Bank’s ratings are equated with its parent, HSBC Malaysia.

RAM Ratings noted that HSBC Amanah posted a pretax profit of RM229.4 million in FY December 2019 (FY December 2018: RM211.6 million), 8% higher year-on-year due to higher financing income from financial assets and deposit placements with financial institutions. The increase in the Bank’s current and saving account deposits (+54%) also contributed to an overall lower cost of funds relative to the Islamic banking industry.

Pretax profit fell to RM20.3 million in Q1 FY December 2020 (Q1 FY December 2019: RM58.6 million) as a result of heftier forward-looking impairment charges on financing.

RAM Ratings expects the bank’s profitability to remain under pressure in view of the low profit rate environment, muted financing growth and higher impairment charges given the weaker macroeconomic environment.

"Like other banks, HSBC Amanah may incur a modification charge arising from hire-purchase and other fixed-rate financing subject to the moratorium," the company said in an online statement.

RAM Ratings maintains AAA ratings for Suria KLCC’s Sukuk Murabahah Programme

RAM Ratings has reaffirmed the AAA/Stable/P1 ratings of Suria KLCC’s Sukuk Murabahah Programme of up to RM600 million. Suria KLCC is the owner and manager of the six-storey Suria KLCC Mall (the Mall), located within the Kuala Lumpur City Centre (KLCC) development in Malaysia.

RAM Ratings said the decision was based on the company’s resilient earnings and strong financial metrics, underpinned by Suria KLCC Mall’s superior asset quality as well as the company’s lowly geared balance sheet and robust debt-protection measures, despite a generally weak retail industry. 

As at end-July 2017, the mall maintained a relatively high occupancy rate of 96%, albeit lower than the 98% of 2015 in its ongoing tenant-remixing exercise. RAM Ratings believes that the mall’s occupancy level should return to its historical levels once the exercise concludes in 2018. 

RAM Ratings also pointed out that around half of the leases expiring in 2017 have been renewed at 7% rental reversions (editor's note: a change in the amount of rent to be paid). "We believe the mall will face minimal difficulty in securing lease renewals and procuring new tenants for its remaining vacant space," the consultancy said.

Standard Chartered Saadiq remains rated at AAA

RAM Ratings has reaffirmed Standard Chartered Saadiq's AAA/Stable/P1 financial institution ratings. The ratings assume that there will be ready capital and funding from parent Standard Chartered Malaysia as required. Saadiq is the Islamic banking arm of Standard Chartered Bank Malaysia, which has also been rated AAA/Stable/P1 by RAM. Standard Chartered Saadiq leverages its parent’s branch network, technical expertise, and risk-management systems. 

According to RAM Ratings, Saadiq remains among the smaller Islamic banks in Malaysia, with less than 2% of the segment's assets as at end-June 2017. Saadiq's financing portfolio is mainly on secured financing, RAM Ratings said. As at end-June 2017, residential and non-residential property financing comprised 61% of the bank's financing portfolio while personal financing facilities accounted for 4%. In end-December 2012 the figures were 20% and 34% respectively.

RAM Ratings analyses risks for sukuk ijarah at Ampang Point Shopping Centre

RAM Ratings has reaffirmed the ratings of Purple Boulevard’s RM250 million sukuk under its RM450 million asset-backed Sukuk Ijarah Programme. The issuer is a special-purpose vehicle sponsored by Nadin Holdings and Nadin Management to undertake the securitisation of Ampang Point Shopping Centre in Malaysia.

There are five classes of sukuk under the programme with different ratings and expected maturity dates, with the earliest being 13 November 2020.

RAM Ratings says the reaffirmation of the ratings of the Class A, Class B and Class C Sukuk Ijarah - AAA/Stable, AA₃/Stable and A₃/Stable respectively - is premised on our expectation that Ampang Point’s performance will remain supportive of our assumed annual sustainable net property income (NPI) and also the assessed capital value of RM221.1 million. The reaffirmation of the Class D Sukuk Ijarah rating (AAA[fg]/Stable) reflects the credit standing of its guarantor, Danajamin Nasional, the rating of which was reaffirmed at AAA/Stable on 23 August 2017, RAM Ratings added.

In fiscal 2016, Ampang Point recorded positive rental reversion as a result of the commencement of leases and revised rental rates of a related-party tenant, RAM Ratings observes. However, the property’s average rental rate (ARR) fell in the first seven months of FY17, mainly because some tenancy agreements were renewed at lower rental rates during the period. This downside risk is mitigated however by the turnover rent component. Correspondingly, NPI fell 1.9% to RM22.85 million (annualised), from RM23.29 million in fiscal 2016 – above the assumed annual sustainable NPI of RM20.00 million. Despite this, Ampang Point’s average occupancy rate (AOR) remained stable at 95%-96%. 

"We note that rental reduction is part of the management’s tenant-retention strategy amid the challenging business environment. As such, we envisage its top-line growth to be constrained in the near to medium term, along with some margin compression," RAM Ratings said. 

The consultancy also noted that Ampang Point's management is continually striving to create additional lettable space and enhance the property’s tenant mix to drive footfall. "These efforts, if they materialise, may provide upside to the property’s cashflow. Nonetheless, our assessment does not accord any benefit to these considerations as such plans remain fluid at this juncture," the consultancy said.

RAM Ratings also brought up the risk of tenant concentration as the top five tenants account for 45.5% of the property's total net lettable area and 19.7% of its monthly gross rental income as at end-July 2017. Furthermore, almost half of the tenancies will expire in 2018. "That said, we expect minimal non-renewal risk from its top anchor tenants as one of them is a related party while two have been tenants since Ampang Point’s inception; the other two anchor tenants are only in their second rental cycles," RAM Ratings said. 

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Edra Energy's proposed sukuk wakalah gets AA3 rating from RAM

RAM Ratings has assigned a preliminary rating of AA3/Stable to Edra Energy (EESB)'s proposed sukuk wakalah of up to RM5.28 billion in nominal value (2017/2037).

EESB was incorporated to design, construct, own, operate and maintain the largest gas power plant in Malaysia, with a capacity of 2,242 MW combined-cycle, gas-turbine power plant in Alor Gajah, Melaka, Malaysia. Proceeds from the proposed sukuk, amounting to RM5.21 billion, will mainly be utilised to fund the construction of the plant.

The preliminary rating reflects EESB’s strong project economics, underscored by stable cashflow generation, resulting in a minimum finance service coverage ratio of 1.50 times under RAM’s sensitised case upon completion of the plant, commensurate with an AA3 rating. 

“Given the technology used in the turbine is untested and no other plant of this scale is currently in commercial operation globally, the company is exposed to technology risk,” highlights Chong Van Nee, RAM’s Co-Head of Infrastructure & Utilities Ratings. “As the plant is under construction stage and equity will be progressively injected into the project throughout the construction period, this also exposes the project to construction-related risk and uncertainty of funding.” 

The company is entitled to full available capacity payments regardless of the quantum of electricity generated, as long as it meets performance requirements under the 21-year power purchase agreement (PPA) signed with Tenaga Nasional (TNB). EESB can also fully pass through fuel costs to TNB via energy payments received from selling electricity, provided that the plant operates within heat rates stipulated in the PPA. RAM Ratings points out that the credit profile for TNB is "sturdy".

The technology risk associated with General Electric (GE)'s 9HA.02-model gas turbine, which can achieve an efficiency rate of over 60%, will be largely addressed via EESB’s long-term service agreement (LTSA) with GE for the operations and maintenance of the gas turbines, steam turbines and generators, RAM Ratings says. GE will provide further support in respect of the insurability of the plant and a special warranty to cover collateral damages.

The lump-sum turnkey engineering, procurement and construction (EPC) contract signed with Hyundai Engineering Company, Hyundai Engineering & Construction Company and Hyundai Engineering Malaysia (collectively, the EPC contractors) provides for performance guarantees, an extended defect liability period of three years and liquidated damages for delays. This mitigates construction risk, RAM Ratings said. In addition, EESB will be insured against any financial loss arising from delays. 

The company’s parent, Edra Power Holdings, is described as having a sturdy business and financial profile, which also allays concerns to some extent on funding uncertainty, RAM Ratings said. 

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Bank of Tokyo-Mitsubishi UFJ Malaysia gets AAA(bg)/Stable rating on sukuk wakalah

RAM Ratings has reaffirmed the AAA(bg)/Stable rating of the securities issued under Bank of Tokyo-Mitsubishi UFJ Malaysia (BTMU Malaysia) for a US$500 million Multi-Currency Sukuk Wakalah Bi Al-Istithmar Programme.

BTMU Malaysia is wholly owned by The Bank of Tokyo-Mitsubishi UFJ, itself rated AAA/Stable/P1 by RAM. Both belong to the Mitsubishi UFJ Financial Group (MUFG) - one of the world’s largest banking groups and also Japan’s leading banking group. The enhanced issue rating reflects the irrevocable and unconditional guarantee extended by BTMU on the sukuk wakalah issued under the programme, RAM Ratings said.

"The bank and its parent constitute part of the BTMU Malaysia’s ratings benefit from a strong likelihood of support from its parent. The ratings also reflect its robust capitalisation, superior loan quality and stable income-generating capacity," said RAM in a statement.

BTMU Malaysia’s loan base expanded 9% in the 15-month fiscal period ended 31 March 2017; the Bank recently changed its financial year-end from 31 December to 31 March. BTMU Malaysia’s loan portfolio is of superior quality as a result of its focus on the Malaysian-domiciled entities owned by established Japanese conglomerates, multinationals and highly-rated domestic names, RAM Ratings notes.

Malaysia retains lead in global sukuk share in 2015

Malaysia has retained its leading position as a sukuk hub in 2015, accounting for 53% of global issuance at the end of the year, says RAM Ratings. 

“This is a strong finish for Malaysia, which has had to contend with the devaluation of the ringgit, slower sukuk issuance and new issuers from other countries,” notes Ruslena Ramli, RAM Ratings’ Head of Islamic Finance. 

Although the performance pales in comparison to the country’s 69% of share of global sukuk as at end-2014, the ringgit remained the currency of choice (39%) for sukuk issuance, followed by the US dollar (32%) and the Indonesian rupiah (9%).

On the domestic front, the value of outstanding sukuk had increased month on month to RM608.5 billion as at end-2015 (end-November 2015: RM595.3 billion), accounting for 54% of the market’s outstanding debt securities. RAM Ratings’ latest edition of the Sukuk Snapshot also shows that sukuk constituted 45% of the RM254.2 billion of domestically issued debt securities in 2015.

The Sukuk Snapshot is designed as a quick reference point for sukuk data and trends. This monthly publication aims to serve the needs of market practitioners, enabling them to monitor global and Malaysian sukuk market developments. 

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