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.
News & trends blog on the shari'ah economy in Asia Pacific/Middle East. Reporting from Singapore.
Showing posts with label rating. Show all posts
Showing posts with label rating. Show all posts
Saturday, 11 July 2020
Friday, 10 July 2020
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.
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.
Sunday, 29 September 2019
AM Best gives ADNTC a positive outlook
AM Best has revised the outlook to positive from stable and affirmed the financial strength rating of A- (excellent) and the long-term issuer credit rating of “a-” of Abu Dhabi National Takaful Company (ADNTC) from the UAE.
The credit ratings reflect ADNTC’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile, and appropriate enterprise risk management.
The revision of the outlooks to positive reflects AM Best’s expectation that ADNTC will enhance its position in its domestic market whilst continuing to outperform takaful and conventional insurance peers as it executes its business plan.
AM Best considers the takaful regulations in the UAE to be sufficiently strong, given the protection it provides to policyholders. Consequently, ADNTC’s risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio (BCAR), is well in excess of the strongest threshold, on a combined basis, and prospective capitalisation is expected to be sufficient to support the company’s business plans.
An offsetting rating factor is ADNTC’s moderate reliance on reinsurance. However, the credit risk is mitigated by the company’s reinsurance panel, which is considered to be of good credit quality, AM Best said. Whilst the company’s asset base is concentrated in the UAE, it holds a low-risk investment portfolio that is considered highly liquid and has one of the lowest balance of debtors in the market.
ADNTC reported profit before tax of AED68.3 million for 2018, equivalent to a return on equity of 20.1%. The company’s overall earnings are driven predominately by its underwriting operations, which have generated strong results and historically have exhibited a relatively low level of volatility. The company’s five-year (2014-2018) average combined ratio is excellent at 69.9% (63.8% in 2018), with the majority of profit derived from its family takaful products. For 1H19, despite double-digit growth in gross written contributions, the company’s profit increased by 21% to AED44.8 million, compared with the same period in 2018.
AM Best expects the company’s strong operating performance to continue, given its effective underwriting controls and experienced management team. ADNTC also benefits from a solid reputation as one of the most successful takaful operators in the market, which is complemented by its strong relationships with local Islamic banks.
Given its track record of strong operating performance, ADNTC has been reducing its dependence on the qard hasan (i.e., an interest-free loan from the shareholders’ fund to the policyholders’ fund), with the life technical account in a surplus position. In 2018, the company distributed AED4.4 million surplus to eligible policyholders, making it the first takaful operator in the UAE to distribute a surplus. AM Best expects this to provide a unique value proposition for customers and further enhance its business profile in the region.
The credit ratings reflect ADNTC’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile, and appropriate enterprise risk management.
The revision of the outlooks to positive reflects AM Best’s expectation that ADNTC will enhance its position in its domestic market whilst continuing to outperform takaful and conventional insurance peers as it executes its business plan.
AM Best considers the takaful regulations in the UAE to be sufficiently strong, given the protection it provides to policyholders. Consequently, ADNTC’s risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio (BCAR), is well in excess of the strongest threshold, on a combined basis, and prospective capitalisation is expected to be sufficient to support the company’s business plans.
An offsetting rating factor is ADNTC’s moderate reliance on reinsurance. However, the credit risk is mitigated by the company’s reinsurance panel, which is considered to be of good credit quality, AM Best said. Whilst the company’s asset base is concentrated in the UAE, it holds a low-risk investment portfolio that is considered highly liquid and has one of the lowest balance of debtors in the market.
ADNTC reported profit before tax of AED68.3 million for 2018, equivalent to a return on equity of 20.1%. The company’s overall earnings are driven predominately by its underwriting operations, which have generated strong results and historically have exhibited a relatively low level of volatility. The company’s five-year (2014-2018) average combined ratio is excellent at 69.9% (63.8% in 2018), with the majority of profit derived from its family takaful products. For 1H19, despite double-digit growth in gross written contributions, the company’s profit increased by 21% to AED44.8 million, compared with the same period in 2018.
AM Best expects the company’s strong operating performance to continue, given its effective underwriting controls and experienced management team. ADNTC also benefits from a solid reputation as one of the most successful takaful operators in the market, which is complemented by its strong relationships with local Islamic banks.
Given its track record of strong operating performance, ADNTC has been reducing its dependence on the qard hasan (i.e., an interest-free loan from the shareholders’ fund to the policyholders’ fund), with the life technical account in a surplus position. In 2018, the company distributed AED4.4 million surplus to eligible policyholders, making it the first takaful operator in the UAE to distribute a surplus. AM Best expects this to provide a unique value proposition for customers and further enhance its business profile in the region.
Thursday, 13 December 2018
AM Best analyses Solidarity Bahrain
AM Best has affirmed the financial strength rating (FSR) of B++ (good) and the long-term issuer credit rating (ICR) of “bbb” for Solidarity Bahrain.The outlook of the FSR is stable, while the outlook of the long-term ICR is positive, the ratings agency said.
The ratings reflect Solidarity Bahrain’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also factor in rating enhancement, reflecting Solidarity Bahrain’s strategic importance to its ultimate parent company, Solidarity Group Holding, a provider of Islamic insurance solutions in Bahrain and Jordan.
The positive outlook reflects the potential benefits of an enhanced business profile for the Solidarity group following the integration of Al Ahlia Insurance Company (AAIC) into its operations.
AM Best expects Solidarity Bahrain’s operating performance to remain adequate, benefitting from corrective actions taken by management to improve the profitability of AAIC’s legacy operations through strengthened underwriting practices and more stringent risk selection. Furthermore, de-risking of Solidarity Bahrain’s investment portfolio is expected to result in greater earnings stability over the medium term.
Solidarity Bahrain was formed following the merger between AAIC and Solidarity General Takaful on 3 December 2017, creating a leading insurer in the Bahraini insurance market by gross written contribution. However, Solidarity Bahrain’s business profile remains limited by its concentration in Bahrain’s insurance market, which is relatively small and highly competitive, AM Best said.
Details:
Read AM Best's financial strength rating guide (PDF)
The ratings reflect Solidarity Bahrain’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also factor in rating enhancement, reflecting Solidarity Bahrain’s strategic importance to its ultimate parent company, Solidarity Group Holding, a provider of Islamic insurance solutions in Bahrain and Jordan.
The positive outlook reflects the potential benefits of an enhanced business profile for the Solidarity group following the integration of Al Ahlia Insurance Company (AAIC) into its operations.
AM Best expects Solidarity Bahrain’s operating performance to remain adequate, benefitting from corrective actions taken by management to improve the profitability of AAIC’s legacy operations through strengthened underwriting practices and more stringent risk selection. Furthermore, de-risking of Solidarity Bahrain’s investment portfolio is expected to result in greater earnings stability over the medium term.
Solidarity Bahrain was formed following the merger between AAIC and Solidarity General Takaful on 3 December 2017, creating a leading insurer in the Bahraini insurance market by gross written contribution. However, Solidarity Bahrain’s business profile remains limited by its concentration in Bahrain’s insurance market, which is relatively small and highly competitive, AM Best said.
Details:
Read AM Best's financial strength rating guide (PDF)
Tuesday, 17 July 2018
Fitch, Moody's give the Islamic Development Bank AAA ratings
Fitch Ratings has affirmed the Islamic Development Bank (IsDB)'s long-term issuer default rating (IDR) at AAA with a stable outlook. The short-term IDR has been affirmed at F1+. The trust certificates issued by IDB Trust Services and guaranteed by IsDB have also been affirmed at AAA.
Meanwhile, Moody's Investors Service has affirmed the Islamic Development Bank's AAA rating with a stable outlook. The AAA-rating is based on the bank's strong capital base, Moody's said in a statement.
"The Islamic Development Bank benefits from a strong liquidity position, and is considered a benchmark issuer within the global sukuk market," Moody's said. "It is a benchmark issuer within the Islamic finance world, being one of the few AAA-rated issuers. Given the scarcity of high-quality, shari'ah-compliant securities, the bank's sukuks have always found strong demand."
The AAA rating of IsDB reflects its intrinsic credit strengths with its solvency and liquidity assessment both at 'aaa'.
The 'aaa' solvency assessment reflects IsDB's excellent capitalisation and low risk. Its equity- to-asset ratio was 43% in 2017, one of the strongest among multilateral development banks (MDBs). The ratio has declined in recent years (49% in 2015), reflecting rapid growth in IsDB's banking portfolio. However, Fitch expects lending growth to decelerate in line with IsDB's strategy and the equity-to-asset ratio to remain above 40% through to 2020.
Fitch assesses IsDB's overall risks as low. Credit risk is moderate. The bank's operations in low-rated countries translate into an average rating of loans at B+. Impaired loans have remained moderate at 3.2% of total exposure in 2017 (based on Fitch's own calculation, which differs from IsDB's calculation) and primarily reflect the bank's sovereign exposure to Syria and Yemen. Concentration risk is low as the bank's five largest exposures account for 33% of the total. Equity risk is assessed as low, reflecting the bank's limited exposure to equity (10% of total banking operations in 2017).
The bank's risk management is conservative overall and risk management policies are deemed strong. Prudential rules include strict limits on country, sector and single borrower exposures. However, the provisioning of impaired assets is less conservative than at other AAA-rated peers. The leverage ratio maximum limit was loosened to 175% in 2017 from 125% previously. At 127% in 2017, it remains below that of AAA-rated peers.
IsDB's 'aaa' liquidity assessment balances the bank's liquidity buffers, with liquid assets-to-short-term debt expected to remain well above the 1.5x threshold by 2020 (4.9x in 2017), against the bank's moderate asset quality. The share of AA to AAA rated assets in the bank's treasury portfolio is expected to remain at around 15% in 2020 from 14.1% in 2017, well below AAA-rated peers. This is mitigated by an overall high share of investment-grade assets in total treasury assets (87% in 2017). IsDB's access to capital markets is deemed excellent as evidenced by regular sukuk issuance.
IsDB's business environment is assessed as medium-risk, which translates into no adjustment to Fitch's solvency assessment. Fitch views both the business profile and operating environment as medium-risk. This primarily reflects the bank's focus on lending to non-investment grade countries (only two of the top 10 exposures are investment-grade) and the generally low credit quality and high political risk in countries of operations.
Meanwhile, Moody's Investors Service has affirmed the Islamic Development Bank's AAA rating with a stable outlook. The AAA-rating is based on the bank's strong capital base, Moody's said in a statement.
"The Islamic Development Bank benefits from a strong liquidity position, and is considered a benchmark issuer within the global sukuk market," Moody's said. "It is a benchmark issuer within the Islamic finance world, being one of the few AAA-rated issuers. Given the scarcity of high-quality, shari'ah-compliant securities, the bank's sukuks have always found strong demand."
The AAA rating of IsDB reflects its intrinsic credit strengths with its solvency and liquidity assessment both at 'aaa'.
The 'aaa' solvency assessment reflects IsDB's excellent capitalisation and low risk. Its equity- to-asset ratio was 43% in 2017, one of the strongest among multilateral development banks (MDBs). The ratio has declined in recent years (49% in 2015), reflecting rapid growth in IsDB's banking portfolio. However, Fitch expects lending growth to decelerate in line with IsDB's strategy and the equity-to-asset ratio to remain above 40% through to 2020.
Fitch assesses IsDB's overall risks as low. Credit risk is moderate. The bank's operations in low-rated countries translate into an average rating of loans at B+. Impaired loans have remained moderate at 3.2% of total exposure in 2017 (based on Fitch's own calculation, which differs from IsDB's calculation) and primarily reflect the bank's sovereign exposure to Syria and Yemen. Concentration risk is low as the bank's five largest exposures account for 33% of the total. Equity risk is assessed as low, reflecting the bank's limited exposure to equity (10% of total banking operations in 2017).
The bank's risk management is conservative overall and risk management policies are deemed strong. Prudential rules include strict limits on country, sector and single borrower exposures. However, the provisioning of impaired assets is less conservative than at other AAA-rated peers. The leverage ratio maximum limit was loosened to 175% in 2017 from 125% previously. At 127% in 2017, it remains below that of AAA-rated peers.
IsDB's 'aaa' liquidity assessment balances the bank's liquidity buffers, with liquid assets-to-short-term debt expected to remain well above the 1.5x threshold by 2020 (4.9x in 2017), against the bank's moderate asset quality. The share of AA to AAA rated assets in the bank's treasury portfolio is expected to remain at around 15% in 2020 from 14.1% in 2017, well below AAA-rated peers. This is mitigated by an overall high share of investment-grade assets in total treasury assets (87% in 2017). IsDB's access to capital markets is deemed excellent as evidenced by regular sukuk issuance.
IsDB's business environment is assessed as medium-risk, which translates into no adjustment to Fitch's solvency assessment. Fitch views both the business profile and operating environment as medium-risk. This primarily reflects the bank's focus on lending to non-investment grade countries (only two of the top 10 exposures are investment-grade) and the generally low credit quality and high political risk in countries of operations.
The medium-risk assessment also accounts for the moderate share of non-sovereign operations (16% of total) and the medium size of IsDB's banking portfolio (US$21 billion). This is mitigated by the bank's quality of governance, including experienced staff and a prudential risk framework. Fitch's assessment also reflects the importance of IsDB's public mandate for the bank's member countries and the operational support that member states can provide to the bank, including KSA where IsDB is located.
Shareholders' support is not a rating driver. The support rating is assessed at aa-, reflecting the coverage of net debt by callable capital rated AA- or higher. The average rating of key shareholders consisting of KSA (A+/Stable), the UAE, Libya, Iran and Nigeria (B+/Negative) is BB+.
Shareholders' support is not a rating driver. The support rating is assessed at aa-, reflecting the coverage of net debt by callable capital rated AA- or higher. The average rating of key shareholders consisting of KSA (A+/Stable), the UAE, Libya, Iran and Nigeria (B+/Negative) is BB+.
Labels:
bank,
Development,
Islamic,
rating
Friday, 13 April 2018
IIRA now a licensed credit rating agency in Oman
The Capital Market Authority (CMA) of Oman has authorised the Islamic International Rating Agency (IIRA) as an official credit rating agency.
IIRA intends to strengthen the financial sector and promote the sukuk market locally, applying the same rigourous rating standards derived from its rating methodologies.
IIRA is also recognised as an external credit assessment institution (ECM) by the Central Bank of Bahrain (CBB), Banking Regulation and Supervision Agency (BRSA), Turkey and the Central Bank of Jordan (CBJ). IIRA has been also recognised as external credit rating agency (ECRA) by the Astana Financial Services Authority (AFSA), Kazakhstan.
Founded by the Islamic Development Bank in 2002, the Bahrain-based Islamic International Rating Agency assigns ratings to institutions in several countries and provides regular sovereign tating coverage to countries including Turkey, Bahrain and Malaysia.
IIRA intends to strengthen the financial sector and promote the sukuk market locally, applying the same rigourous rating standards derived from its rating methodologies.
IIRA is also recognised as an external credit assessment institution (ECM) by the Central Bank of Bahrain (CBB), Banking Regulation and Supervision Agency (BRSA), Turkey and the Central Bank of Jordan (CBJ). IIRA has been also recognised as external credit rating agency (ECRA) by the Astana Financial Services Authority (AFSA), Kazakhstan.
Founded by the Islamic Development Bank in 2002, the Bahrain-based Islamic International Rating Agency assigns ratings to institutions in several countries and provides regular sovereign tating coverage to countries including Turkey, Bahrain and Malaysia.
Friday, 9 March 2018
AM Best gives Qatar Islamic Insurance Company B++ financial strength rating
AM Best has affirmed the B++ (good) financial strength rating and bbb+ long-term issuer credit rating for Qatar Islamic Insurance Company (QIIC). The outlook of these ratings is stable.
The ratings reflect QIIC’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
QIIC adopts a hybrid takaful model, whereby the shareholders’ fund (SHF) charges the policyholders’ fund (PHF) a wakalah fee based on gross written contributions (GWC) and a mudarabah fee based on investment income. QIIC’s ability to accumulate surpluses within the PHF whilst regularly distributing surplus back to policyholders supports the sustainability of the takaful model.
QIIC has a track record of strong operating and technical profitability, highlighted by a five-year average (2013 - 2017) combined ratio of 79% that has remained very stable over recent years. While there has generally been a good balance of earnings between technical and investment income, a volatile investment environment in Qatar has meant investment returns have declined over the past four years. During 2017, the company reported net profit of QAR62 million, equivalent to a sound return on equity of 13%.
Although the company is concentrated on its domestic market of Qatar, the company maintains a niche market position as an established provider of shari’ah-compliant products and a strong reputation that is partially attributable to the company’s track record of distributing surpluses back to its policyholders. The company also benefits from being a member of the National Insurance Consortium, which provides QIIC access to sizable government infrastructure contracts. QIIC reported modest premium growth in 2017, as the company reported a 1% increase in GWC to QAR317 million, compared with 2016.
The ratings reflect QIIC’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
QIIC adopts a hybrid takaful model, whereby the shareholders’ fund (SHF) charges the policyholders’ fund (PHF) a wakalah fee based on gross written contributions (GWC) and a mudarabah fee based on investment income. QIIC’s ability to accumulate surpluses within the PHF whilst regularly distributing surplus back to policyholders supports the sustainability of the takaful model.
QIIC has a track record of strong operating and technical profitability, highlighted by a five-year average (2013 - 2017) combined ratio of 79% that has remained very stable over recent years. While there has generally been a good balance of earnings between technical and investment income, a volatile investment environment in Qatar has meant investment returns have declined over the past four years. During 2017, the company reported net profit of QAR62 million, equivalent to a sound return on equity of 13%.
Although the company is concentrated on its domestic market of Qatar, the company maintains a niche market position as an established provider of shari’ah-compliant products and a strong reputation that is partially attributable to the company’s track record of distributing surpluses back to its policyholders. The company also benefits from being a member of the National Insurance Consortium, which provides QIIC access to sizable government infrastructure contracts. QIIC reported modest premium growth in 2017, as the company reported a 1% increase in GWC to QAR317 million, compared with 2016.
Friday, 17 November 2017
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.
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.
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.
Wednesday, 15 November 2017
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.
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.
Tuesday, 14 November 2017
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.
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%.
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.
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.
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.
Explore:
Become a RAM Ratings member to get free access to RAM's media releases, rating criteria and selected commentaries
Friday, 10 November 2017
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).
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.
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.
Explore:
Become a RAM Ratings member to get free access to RAM's media releases, rating criteria and selected commentaries.
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.
Become a RAM Ratings member to get free access to RAM's media releases, rating criteria and selected commentaries.
Tuesday, 7 November 2017
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.
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.
Thursday, 22 December 2016
IIRA gives Jordan Islamic Bank AA (SQ) rating
The Islamic International Rating Agency (IIRA) has placed shari'ah quality ratings for Jordan Islamic Bank at AA (SQ*).
The IIRA believes that the bank is compliant with new regulatory requirements vis-à-vis shari'ah-related practices and oversight. Over the years, the bank has maintained contribution to charitable purposes and demonstrated initiative towards social responsibility, the IIRA notes.
The evaluation reflects the systems and practices put in place at the institution to ensure a high degree of adherence to shari'ah principles. The bank operates a comprehensive training programme with specific reference to shari'ah related training and its organisational culture reflects the institution's commitment to shari'ah, for instance.
The rating committee has also taken note of the enabling environment fostered by the enhanced regulatory framework, including extended guidance for shari'ah governance. The bank's shari'ah infrastructure is guided by the Shari'a Supervisory Board (SSB), which comprises four members. In addition to the high qualifications held by SSB members, the bank's internal staff designated for shari'ah matters is also well-qualified in the area of jurisprudence.
The IIRA believes that the bank is compliant with new regulatory requirements vis-à-vis shari'ah-related practices and oversight. Over the years, the bank has maintained contribution to charitable purposes and demonstrated initiative towards social responsibility, the IIRA notes.
*SQ stands for Shari'ah Quality.
Tuesday, 13 December 2016
IIRA rates Bank ABC Islamic at A-/A2
Bahrain-based Islamic International Rating Agency (IIRA) has rated Bank ABC Islamic (ABCI) of Bahrain at A- /A2 (Single A Minus /A Two) on the international scale and at A+(bh) / A1(bh) (Single A Plus /A One) on the national scale, with a stable outlook. Corporate and shari'ah governance practices at ABCI continue to derive strength from regulatory guidance and strong self-regulatory infrastructure, with no departure from shari'ah guidance noted in the last three years, IIRA adds.
The ratings on ABCI primarily reflect the bank's ability to consistently improve its profitability and maintain its asset quality indicators amidst a tough macroeconomic environment in its core markets, particularly in the GCC. The bank has been able to build up its business portfolio without any new incidence of impairment over the last couple of years, IIRA notes. However, fiscal pressure in ABCI's core market economies has intensified due to subdued oil prices. A potential financial stress scenario in ABCI's key end markets could challenge the bank's future growth and income generation potential, the ratings agency says.
The ratings on ABCI primarily reflect the bank's ability to consistently improve its profitability and maintain its asset quality indicators amidst a tough macroeconomic environment in its core markets, particularly in the GCC. The bank has been able to build up its business portfolio without any new incidence of impairment over the last couple of years, IIRA notes. However, fiscal pressure in ABCI's core market economies has intensified due to subdued oil prices. A potential financial stress scenario in ABCI's key end markets could challenge the bank's future growth and income generation potential, the ratings agency says.
On the plus side, the bank has sound capitalisation levels and adequate liquidity, especially with ABCI's increasing role in sukuk activities and investments. In addition, the bank's ratings are also driven by the ongoing financial and operational support from its parent Bank ABC Group in terms of providing a stable funding source and operational synergies, IIRA said. Bank ABC Group (Arab Banking Corporation) is one of the leading conventional wholesale banks in the MENA region with a diversified franchise spread across 17 locations globally.
Thursday, 1 December 2016
IIRA reaffirms ratings for The Islamic Insurance Company, Jordan
The Islamic International Rating Agency (IIRA) has reaffirmed the takaful financial strength (TFS) rating of The Islamic Insurance Company (TIIC) in Jordan at 'A' (Single A), with a stable outlook. The corporate and shari'ah governance framework at the institution remains sound, the IIRA said.
TIIC is the first and one of two takaful operators in Jordan, and is the 7th largest player commanding a share of 4.2% of gross premiums written in the insurance industry. IIRA observes that TIIC's growth trends, although affected by economic pressures, have remained favourable compared to the industry in recent years. The company has been successful through increasing the proportion of low-risk and highly profitable life takaful segment in their revenue mix.
IIRA also notes that TIIC draws an advantage from its association with Jordan Islamic Bank (JIB), which has a strong retail franchise in the country and is TIIC's major shareholder. The company sources a significant amount of profitable business from JIB.
According to the IIRA, diversification in earnings could help the company to buffer the volatility inherent in key lines of takaful businesses and boost overall returns.
TIIC is the first and one of two takaful operators in Jordan, and is the 7th largest player commanding a share of 4.2% of gross premiums written in the insurance industry. IIRA observes that TIIC's growth trends, although affected by economic pressures, have remained favourable compared to the industry in recent years. The company has been successful through increasing the proportion of low-risk and highly profitable life takaful segment in their revenue mix.
IIRA also notes that TIIC draws an advantage from its association with Jordan Islamic Bank (JIB), which has a strong retail franchise in the country and is TIIC's major shareholder. The company sources a significant amount of profitable business from JIB.
According to the IIRA, diversification in earnings could help the company to buffer the volatility inherent in key lines of takaful businesses and boost overall returns.
Sunday, 17 July 2016
MARC scores Westports Malaysia's Sukuk Musyarakah Programme as AA+IS
MARC has affirmed its AA+IS rating on Westports Malaysia's RM2 billion Sukuk Musyarakah Programme with a stable outlook. Westports handles a multi-cargo port in Pulau Indah, Port Klang, Malaysia.
In affirming the rating, the rating agency considered the potential migration of container traffic volume by one of Westports’ major clients, CMA CGM, to Pasir Panjang Terminal in Singapore. CMA CGM, which contributed 3.31 million twenty-foot equivalent units (TEU), or 37% of Westports’ total TEUs handled in 2015, is expected to move a portion of its existing traffic to Singapore following the setting up of a joint venture with the Port of Singapore Authority. The impact on Westports’ business and financial performance from CMA CGM’s move at this juncture is limited given that any decrease in the liner’s transhipment throughput could be gradual and that a new shipping alliance set to launch by April 2017 could see some traffic being routed to Westports under a dual hub strategy which is likely to be pursued by the new alliance.
Westports’ affirmed rating continues to be supported by its strong cash flow-generating ability, stemming from a steady operational and sound productivity performance. The port retains a strong competitive position, underpinned by its strategic location along one of the world’s busiest shipping lanes. These strengths are moderated by Westports’ exposure to high client concentration risk and to the vagaries of the global shipping industry.
As at end-2015, Westports’ container handling capacity stood at 11 million TEUs, which is expected to increase by 2.5 million TEUs by end-2017. It remains the dominant port operator in Port Klang, which is ranked the 12th busiest container port globally. MARC believes Westports’ continued investments in upgrading its port capacity and operations have been key in generating throughput growth and maintaining strong operating efficiency. The port achieved a throughput growth of 8.3% year-on-year to 9.1 million TEUs in 2015, translating to a CAGR of 9.2% between 2011 and 2015. For 2015, the port utilisation rate improved to 82.3% from 76.1% in the previous year. The higher port utilisation rate contributed to slightly longer vessel waiting time. MARC expects the vessel waiting time to improve gradually with the commencement of phase one of container terminal 8 (CT8) in April 2016.
While Westports’ debt-to-equity ratio stood at a moderate 0.62 times at end-2015 (2014: 0.66 times), the rating agency expects the port operator to prudently manage its port expansion and debt levels. In 2016, management has budgeted RM750 million for expansion and maintenance capital expenses to be funded by internally-generated funds and short-term borrowings. Westports’ outstanding amount under the sukuk programme is RM1.15 billion as at end-2015; its first two payments of RM50 million each are due in April 2021 and May 2021 respectively.
The outlook on Westports remains stable on expectations that the port operator will continue to maintain its operational and financial metrics at current levels. A prolonged economic downturn, reduction of port calls as a result of industry consolidation and/or erosion in its cash flow and leverage metrics would exert downward pressure on Westports’ rating.
In affirming the rating, the rating agency considered the potential migration of container traffic volume by one of Westports’ major clients, CMA CGM, to Pasir Panjang Terminal in Singapore. CMA CGM, which contributed 3.31 million twenty-foot equivalent units (TEU), or 37% of Westports’ total TEUs handled in 2015, is expected to move a portion of its existing traffic to Singapore following the setting up of a joint venture with the Port of Singapore Authority. The impact on Westports’ business and financial performance from CMA CGM’s move at this juncture is limited given that any decrease in the liner’s transhipment throughput could be gradual and that a new shipping alliance set to launch by April 2017 could see some traffic being routed to Westports under a dual hub strategy which is likely to be pursued by the new alliance.
Westports’ affirmed rating continues to be supported by its strong cash flow-generating ability, stemming from a steady operational and sound productivity performance. The port retains a strong competitive position, underpinned by its strategic location along one of the world’s busiest shipping lanes. These strengths are moderated by Westports’ exposure to high client concentration risk and to the vagaries of the global shipping industry.
As at end-2015, Westports’ container handling capacity stood at 11 million TEUs, which is expected to increase by 2.5 million TEUs by end-2017. It remains the dominant port operator in Port Klang, which is ranked the 12th busiest container port globally. MARC believes Westports’ continued investments in upgrading its port capacity and operations have been key in generating throughput growth and maintaining strong operating efficiency. The port achieved a throughput growth of 8.3% year-on-year to 9.1 million TEUs in 2015, translating to a CAGR of 9.2% between 2011 and 2015. For 2015, the port utilisation rate improved to 82.3% from 76.1% in the previous year. The higher port utilisation rate contributed to slightly longer vessel waiting time. MARC expects the vessel waiting time to improve gradually with the commencement of phase one of container terminal 8 (CT8) in April 2016.
While Westports’ debt-to-equity ratio stood at a moderate 0.62 times at end-2015 (2014: 0.66 times), the rating agency expects the port operator to prudently manage its port expansion and debt levels. In 2016, management has budgeted RM750 million for expansion and maintenance capital expenses to be funded by internally-generated funds and short-term borrowings. Westports’ outstanding amount under the sukuk programme is RM1.15 billion as at end-2015; its first two payments of RM50 million each are due in April 2021 and May 2021 respectively.
The outlook on Westports remains stable on expectations that the port operator will continue to maintain its operational and financial metrics at current levels. A prolonged economic downturn, reduction of port calls as a result of industry consolidation and/or erosion in its cash flow and leverage metrics would exert downward pressure on Westports’ rating.
Interested?
View the definitions of MARC's ratings
Thursday, 14 July 2016
MARC rates TNB Northern Energy's sukuk as AAAIS
MARC has affirmed its AAAIS rating on TNB Northern Energy's Islamic securities (sukuk) of RM1.625 billion with a stable outlook.
TNB Northern Energy was established to finance and develop a 1,071.43-megawatt combined-cycle gas turbine power plant in Seberang Perai Tengah, Penang, under a 21-year power purchase agreement (PPA) with offtaker Tenaga Nasional (TNB). TNB Northern Energy is 100% owned by TNB Prai which is itself a fully-owned TNB subsidiary.
The rating and outlook are equalised with those of TNB Northern Energy’s ultimate parent TNB, on which MARC currently has a senior unsecured rating of AAA/Stable. The rating equalisation is based on TNB’s commitment in the form of an unconditional and irrevocable project completion support guarantee and post-completion rolling guarantee in favour of sukuk holders. MARC’s assessment is further underpinned by TNB’s undertaking to maintain full ownership of TNB Northern Energy in addition to the operational proximity and financial linkages between the two entities.
The power plant project achieved full commercial operation date (COD) on February 20, 2016, following a 50-day delay from the original scheduled COD. The delay, which was attributed to design issues and defects encountered during the commissioning phase, has resulted in liquidated damages (LD) of RM32.1 million payable to TNB. MARC notes that TNB Northern Energy will claim a LD payment of RM59.6 million from the engineering, procurement and construction (EPC) contractor, Samsung C&T KL. The delay, coupled with the weakening ringgit, has led to a 3.9% increase above the original project cost budget to RM2,587.3 million at completion. The increase, however, remains well within the project sponsor’s completion support guarantee of 10% or RM249 million.
The plant’s operations and maintenance (O&M) duties are carried out by related entity TNB Repair & Maintenance (TNB Remaco) under a 21-year O&M agreement. The rating agency notes that the LD provision under the O&M agreement is not sufficient to recover any revenue losses given that TNB Remaco is only liable for up to 30% in capacity payment reductions and non-reimbursable fuel cost in the event of breaches in the contracted average availability target, net output capacity and net heat rate. Nonetheless, O&M risk is mitigated through the availability of plant warranty and long-term turbine maintenance support provided by Samsung and Siemens respectively. With regard to fuel supply risk, the long-term gas supply agreement with Petroliam Nasional addresses this concern.
The project revenue in the form of availability capacity and energy payments subject to meeting performance standards under the PPA provides sufficient coverage to TNB Northern Energy’s fairly flat debt servicing profile. The company is expected to achieve an average finance service cover ratio (FSCR) without cash balances of 1.31 times during the sukuk tenure. MARC views TNB Northern Energy’s finance service ability as adequate even after taking into account the COD delay which has led the projected cash balance being revised downward by RM4 million to RM33 million as at December 31, 2016. TNB Northern Energy’s designated account balances of RM118 million as at April 30, 2016 is well above the finance service obligations of RM70 million for 2016.
MARC’s sensitivity analysis reveals that the project coverage is only able to withstand mild stresses due to the absence of cash build-up. TNB Northern Energy is expected to return about RM834 million of capital to its shareholders during the sukuk tenure subject to meeting a distribution finance service cover ratio of 1.5 times. The rating agency expects the project sponsor’s rolling guarantee to act as a reliable liquidity source during periods of weaker-than-projected cash flows.
The stable outlook mirrors the outlook on TNB's senior unsecured rating. Any changes in TNB Northern Energy's rating and/or outlook would be primarily driven by a revision of TNB's rating and/or outlook.
Interested?
View the definitions of MARC's ratings
Read the Suroor Asia blog post about MARC's analysis of TNB Western Energy's sukuk
TNB Northern Energy was established to finance and develop a 1,071.43-megawatt combined-cycle gas turbine power plant in Seberang Perai Tengah, Penang, under a 21-year power purchase agreement (PPA) with offtaker Tenaga Nasional (TNB). TNB Northern Energy is 100% owned by TNB Prai which is itself a fully-owned TNB subsidiary.
The rating and outlook are equalised with those of TNB Northern Energy’s ultimate parent TNB, on which MARC currently has a senior unsecured rating of AAA/Stable. The rating equalisation is based on TNB’s commitment in the form of an unconditional and irrevocable project completion support guarantee and post-completion rolling guarantee in favour of sukuk holders. MARC’s assessment is further underpinned by TNB’s undertaking to maintain full ownership of TNB Northern Energy in addition to the operational proximity and financial linkages between the two entities.
The power plant project achieved full commercial operation date (COD) on February 20, 2016, following a 50-day delay from the original scheduled COD. The delay, which was attributed to design issues and defects encountered during the commissioning phase, has resulted in liquidated damages (LD) of RM32.1 million payable to TNB. MARC notes that TNB Northern Energy will claim a LD payment of RM59.6 million from the engineering, procurement and construction (EPC) contractor, Samsung C&T KL. The delay, coupled with the weakening ringgit, has led to a 3.9% increase above the original project cost budget to RM2,587.3 million at completion. The increase, however, remains well within the project sponsor’s completion support guarantee of 10% or RM249 million.
The plant’s operations and maintenance (O&M) duties are carried out by related entity TNB Repair & Maintenance (TNB Remaco) under a 21-year O&M agreement. The rating agency notes that the LD provision under the O&M agreement is not sufficient to recover any revenue losses given that TNB Remaco is only liable for up to 30% in capacity payment reductions and non-reimbursable fuel cost in the event of breaches in the contracted average availability target, net output capacity and net heat rate. Nonetheless, O&M risk is mitigated through the availability of plant warranty and long-term turbine maintenance support provided by Samsung and Siemens respectively. With regard to fuel supply risk, the long-term gas supply agreement with Petroliam Nasional addresses this concern.
The project revenue in the form of availability capacity and energy payments subject to meeting performance standards under the PPA provides sufficient coverage to TNB Northern Energy’s fairly flat debt servicing profile. The company is expected to achieve an average finance service cover ratio (FSCR) without cash balances of 1.31 times during the sukuk tenure. MARC views TNB Northern Energy’s finance service ability as adequate even after taking into account the COD delay which has led the projected cash balance being revised downward by RM4 million to RM33 million as at December 31, 2016. TNB Northern Energy’s designated account balances of RM118 million as at April 30, 2016 is well above the finance service obligations of RM70 million for 2016.
MARC’s sensitivity analysis reveals that the project coverage is only able to withstand mild stresses due to the absence of cash build-up. TNB Northern Energy is expected to return about RM834 million of capital to its shareholders during the sukuk tenure subject to meeting a distribution finance service cover ratio of 1.5 times. The rating agency expects the project sponsor’s rolling guarantee to act as a reliable liquidity source during periods of weaker-than-projected cash flows.
The stable outlook mirrors the outlook on TNB's senior unsecured rating. Any changes in TNB Northern Energy's rating and/or outlook would be primarily driven by a revision of TNB's rating and/or outlook.
Interested?
View the definitions of MARC's ratings
Read the Suroor Asia blog post about MARC's analysis of TNB Western Energy's sukuk
Thursday, 7 July 2016
MARC confirms rating of AAAIS on Islamic Development Bank's sukuk wakalah
MARC has assigned a final rating of AAAIS to Islamic Development Bank’s (IsDB) proposed sukuk wakalah (sukuk) issuance of up to RM400 million by Tadamun Services (Tadamun), a trust established by IsDB for the purpose of issuing the sukuk. 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 AAAIS was based.
Interested?
View the definitions of MARC's ratings
Read the Suroor Asia blog post about MARC's ratings for the IsDB
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 AAAIS was based.
Interested?
View the definitions of MARC's ratings
Read the Suroor Asia blog post about MARC's ratings for the IsDB
Tuesday, 28 June 2016
MARC discusses Islamic Development Bank ratings
MARC has assigned long-term and short-term financial institution (FI) ratings of AAA and MARC-1 respectively to the Islamic Development Bank (IsDB). The ratings are on the Malaysian national scale. Concurrently, the rating agency has assigned a preliminary rating of AAAIS to the proposed sukuk wakalah (sukuk) issuance of up to RM400 million by Tadamun Services (Tadamun), a trust established by IsDB for the purpose of issuing the sukuk. IsDB will provide an undertaking to acquire the sukuk upon maturity, early redemption or in the event of a default by Tadamun as well as to cover any shortfall in profit payments on the sukuk. The outlook on the ratings is stable.
Established by the Organisation of Islamic Cooperation (OIC) in 1975 and headquartered in Jeddah, Saudi Arabia, IsDB is a multilateral development bank (MDB) with a membership of 57 countries, most of which are from the Middle East and North Africa (MENA) and Sub-Sahara Africa (SSA) regions. IsDB undertakes financing and investment activities to support the economic development of member countries and Muslim communities across the world.
MARC’s ratings on IsDB primarily reflect the bank’s solid capital position and strong liquidity levels, which are underpinned by high shareholder support. The ratings also incorporate IsDB’s prudent financing policy that includes limits on geographical and sectoral exposures and the bank’s preferred creditor status. These strengths significantly mitigate the credit risk in the bank’s financing and investment portfolio.
IsDB’s capital adequacy levels provide significant coverage over any unexpected losses stemming from its financing and investment activities. For the Islamic year ended 1436 (FY1436H), which corresponds to October 13, 2015, the bank’s total members’ equity of ID7.8 billion (Islamic dinar*), comprising paid-in capital of ID4.9 billion and reserves of ID2.9 billion, accounted for 48.8% of total assets. As a proportion of total financing and investments, members’ equity amounted to 60.7%. The coverage ratios are comparatively higher than its peer MDBs such as the African Development Bank and the Asian Development Bank. MARC notes IsDB’s capital position is further enhanced by the bank’s callable capital of ID40.5 billion as at end-FY1436H; the bank’s callable capital constitutes contractual support that can be called upon on member countries to cover the bank’s obligations.
MARC views positively the strong financial commitment of IsDB’s key shareholders, in particular Saudi Arabia, Kuwait, Qatar and UAE (with a combined stake of 45%), to support the bank. The rating agency draws comfort from the fact that among the member countries, 47% or ID19.1 billion of total callable capital is committed by member countries rated in the A and above category on a global rating scale.
In line with its financing policy, IsDB maintains a single country exposure limit of 15% on its financing and investments to address concentration risk; its three largest country exposures Turkey (8.78%), Morocco (8.74%) and Pakistan (8.43%) are well within the limit. In terms of sectoral distribution, the bank’s inclination is towards infrastructure-related activities, namely public utilities (40.0%) and transport & telecoms (26.8%).
The bank continues to have significant exposure to sovereigns with weak credit ratings, although this has declined from 80% in 1432H to about 70% of the bank’s financing and investments. The bank makes full provisions against installment payments overdue by six months. As at FY1436H, installments overdue stood at 0.97% of total financing and investments. IsDB mitigates the credit risk by requiring explicit guarantees on all sovereign entities; financing for non-sovereigns is limited to strategic entities and projects in which the governments of member countries are major stakeholders and are guarantors of suppliers/offtakers. Given that IsDB has been granted preferred creditor status by its shareholders, the bank has priority claim over other creditors in the event of default.
MARC observes that IsDB has historically maintained a conservative leverage position, relying mainly on equity capital to fund its operations. However, in recent years the bank shifted to capital markets for funding through several sukuk issuances. This led to an increase in the bank’s gearing ratio from 79.1% in 1432H to 93.2% in 1436H; nonetheless, the bank’s gearing remains conservative, both by its own internal measures of 1.25 times members’ equity (paid-in capital plus reserves), as well as compared to its peer MDBs. IsDB is also one of the most liquid institutions among its peer MDBs, with liquid assets constituting 23.5% of total assets.
The stable rating outlook reflects MARC’s expectations that IsDB will maintain its strong capitalisation and liquidity profile, and that the bank’s member countries will continue to extend strong support.
Interested?
View the definitions of MARC's ratings
Read the Suroor Asia blog post about IsDB's work in Bangladesh
*The Islamic dinar is a unit of account used by the IsDB, that is currently equivalent to one Special Drawing Right (SDR) of the International Monetary Fund (IMF). The composition of currencies in SDR basket for the Islamic Dinar are 41.9% for US dollars, 37.4% for the Euro, 11.3% in British pounds and 9.4% in Japanese yen. The IMF declares changes in the composition of currencies in the SDR basket every five years. The last change was declared by IMF on January 1, 2011.
Established by the Organisation of Islamic Cooperation (OIC) in 1975 and headquartered in Jeddah, Saudi Arabia, IsDB is a multilateral development bank (MDB) with a membership of 57 countries, most of which are from the Middle East and North Africa (MENA) and Sub-Sahara Africa (SSA) regions. IsDB undertakes financing and investment activities to support the economic development of member countries and Muslim communities across the world.
MARC’s ratings on IsDB primarily reflect the bank’s solid capital position and strong liquidity levels, which are underpinned by high shareholder support. The ratings also incorporate IsDB’s prudent financing policy that includes limits on geographical and sectoral exposures and the bank’s preferred creditor status. These strengths significantly mitigate the credit risk in the bank’s financing and investment portfolio.
IsDB’s capital adequacy levels provide significant coverage over any unexpected losses stemming from its financing and investment activities. For the Islamic year ended 1436 (FY1436H), which corresponds to October 13, 2015, the bank’s total members’ equity of ID7.8 billion (Islamic dinar*), comprising paid-in capital of ID4.9 billion and reserves of ID2.9 billion, accounted for 48.8% of total assets. As a proportion of total financing and investments, members’ equity amounted to 60.7%. The coverage ratios are comparatively higher than its peer MDBs such as the African Development Bank and the Asian Development Bank. MARC notes IsDB’s capital position is further enhanced by the bank’s callable capital of ID40.5 billion as at end-FY1436H; the bank’s callable capital constitutes contractual support that can be called upon on member countries to cover the bank’s obligations.
MARC views positively the strong financial commitment of IsDB’s key shareholders, in particular Saudi Arabia, Kuwait, Qatar and UAE (with a combined stake of 45%), to support the bank. The rating agency draws comfort from the fact that among the member countries, 47% or ID19.1 billion of total callable capital is committed by member countries rated in the A and above category on a global rating scale.
In line with its financing policy, IsDB maintains a single country exposure limit of 15% on its financing and investments to address concentration risk; its three largest country exposures Turkey (8.78%), Morocco (8.74%) and Pakistan (8.43%) are well within the limit. In terms of sectoral distribution, the bank’s inclination is towards infrastructure-related activities, namely public utilities (40.0%) and transport & telecoms (26.8%).
The bank continues to have significant exposure to sovereigns with weak credit ratings, although this has declined from 80% in 1432H to about 70% of the bank’s financing and investments. The bank makes full provisions against installment payments overdue by six months. As at FY1436H, installments overdue stood at 0.97% of total financing and investments. IsDB mitigates the credit risk by requiring explicit guarantees on all sovereign entities; financing for non-sovereigns is limited to strategic entities and projects in which the governments of member countries are major stakeholders and are guarantors of suppliers/offtakers. Given that IsDB has been granted preferred creditor status by its shareholders, the bank has priority claim over other creditors in the event of default.
MARC observes that IsDB has historically maintained a conservative leverage position, relying mainly on equity capital to fund its operations. However, in recent years the bank shifted to capital markets for funding through several sukuk issuances. This led to an increase in the bank’s gearing ratio from 79.1% in 1432H to 93.2% in 1436H; nonetheless, the bank’s gearing remains conservative, both by its own internal measures of 1.25 times members’ equity (paid-in capital plus reserves), as well as compared to its peer MDBs. IsDB is also one of the most liquid institutions among its peer MDBs, with liquid assets constituting 23.5% of total assets.
The stable rating outlook reflects MARC’s expectations that IsDB will maintain its strong capitalisation and liquidity profile, and that the bank’s member countries will continue to extend strong support.
Interested?
View the definitions of MARC's ratings
Read the Suroor Asia blog post about IsDB's work in Bangladesh
*The Islamic dinar is a unit of account used by the IsDB, that is currently equivalent to one Special Drawing Right (SDR) of the International Monetary Fund (IMF). The composition of currencies in SDR basket for the Islamic Dinar are 41.9% for US dollars, 37.4% for the Euro, 11.3% in British pounds and 9.4% in Japanese yen. The IMF declares changes in the composition of currencies in the SDR basket every five years. The last change was declared by IMF on January 1, 2011.
Monday, 27 June 2016
MARC decides Senai Desaru Expressway rating remains BBB-IS
MARC has affirmed its rating of BBB-IS on Senai-Desaru Expressway’s (SDEB's) RM1.89 billion Islamic Medium-Term Notes (Restructured Sukuk) Programme with a stable outlook.
The rating incorporates the improving traffic volume on the expressway and the accommodative payment structure under the programme, which provides SDEB with headroom to improve its cash flow coverage. Under the restructured sukuk, initiated in 2014, the step-up profit rate structure eases liquidity pressure in the early years of the programme’s tenure, allowing for cash buildup to meet its back-ended principal obligations. In addition, extension of the concession to 2053 from the initial 2038 allows for upside benefit from traffic volume growth generated from planned developments in the expressway’s service areas. The rating also takes into account SDEB’s continued weak credit profile, characterised by persistent negative shareholders’ funds.
MARC notes that total annual traffic volume on the Senai-Pasir Gudang-Desaru Expressway (SDE), which comprises a 77km tolled inter-urban expressway between Senai and Desaru with a connecting highway to Pasir Gudang, increased 17.6% year-on-year (YoY) to 292.4 million passenger car unit-kilometres (pcu-km). The growth was 10.6% higher than the projected traffic volume. The improvement, despite a toll hike in October 2015, has been attributed to increased development activities along the expressway, widening works on the toll-free alternative, and the ongoing projects in Pengerang, where the multi-billion ringgit RAPID project is in progress. Given the actual traffic CAGR of 6.9% over the last three years, traffic volume growth would need to at least sustain to meet traffic projections: the SDE is projected to achieve CAGR of 8.3% from 2016 to 2022, normalising to 7.4% until 2038 before declining to 5%.
The sensitivity analysis on SDEB’s cash flow projections demonstrates that the company can withstand a drop of 7.4% in traffic volume from the base case projections throughout the sukuk tenure and a higher-than-expected operating cost of 4.8% per annum. MARC notes that in the absence of toll hikes and no government compensations given, SDEB’s debt servicing ability would come under pressure starting in FY17. The sensitivity results also show that delays in the RAPID project would weigh on SDEB’s traffic volume and, consequently its cash flows to meet principal repayment of the sukuk, which commences by FY2039.
The back-ended amortisation structure provides SDEB headroom to strengthen its liquidity position in order to maintain compliance with the covenanted finance service cover ratio (FSCR) of 1.25 times, a requirement that commences from June 30, 2018 and runs throughout the remaining tenure of the restructured sukuk.
As at 8MFY2016, the company’s cash and cash balances stood at a low RM26.6 million relative to its financial obligations. MARC remains concerned on SDEB’s sizeable obligations under the concession agreement to widen and upgrade the Cahaya Baru-Pasir Gudang and Ulu Tiram-Cahaya Baru stretches in 2016 and 2017 respectively. However, due to the low usage of the aforementioned stretches, SDEB is seeking a deferment from the government as it will need to incur costs of about RM373.6 million to carry out the upgrading works. The sukuk holders have given SDEB an extension until June 30, 2016 to obtain approval, failing which a technical breach would occur.
The stable outlook reflects SDEB achieving sustainable traffic performance and timely receipt of government compensations as demonstrated in the recent years. Any revision to the rating and/or outlook would depend on the outcome of deferment on the upgrading works or any material deviations from the assumptions set out in the projections.
Interested?
View MARC's list of rating definitions (PDF)
The rating incorporates the improving traffic volume on the expressway and the accommodative payment structure under the programme, which provides SDEB with headroom to improve its cash flow coverage. Under the restructured sukuk, initiated in 2014, the step-up profit rate structure eases liquidity pressure in the early years of the programme’s tenure, allowing for cash buildup to meet its back-ended principal obligations. In addition, extension of the concession to 2053 from the initial 2038 allows for upside benefit from traffic volume growth generated from planned developments in the expressway’s service areas. The rating also takes into account SDEB’s continued weak credit profile, characterised by persistent negative shareholders’ funds.
MARC notes that total annual traffic volume on the Senai-Pasir Gudang-Desaru Expressway (SDE), which comprises a 77km tolled inter-urban expressway between Senai and Desaru with a connecting highway to Pasir Gudang, increased 17.6% year-on-year (YoY) to 292.4 million passenger car unit-kilometres (pcu-km). The growth was 10.6% higher than the projected traffic volume. The improvement, despite a toll hike in October 2015, has been attributed to increased development activities along the expressway, widening works on the toll-free alternative, and the ongoing projects in Pengerang, where the multi-billion ringgit RAPID project is in progress. Given the actual traffic CAGR of 6.9% over the last three years, traffic volume growth would need to at least sustain to meet traffic projections: the SDE is projected to achieve CAGR of 8.3% from 2016 to 2022, normalising to 7.4% until 2038 before declining to 5%.
The sensitivity analysis on SDEB’s cash flow projections demonstrates that the company can withstand a drop of 7.4% in traffic volume from the base case projections throughout the sukuk tenure and a higher-than-expected operating cost of 4.8% per annum. MARC notes that in the absence of toll hikes and no government compensations given, SDEB’s debt servicing ability would come under pressure starting in FY17. The sensitivity results also show that delays in the RAPID project would weigh on SDEB’s traffic volume and, consequently its cash flows to meet principal repayment of the sukuk, which commences by FY2039.
The back-ended amortisation structure provides SDEB headroom to strengthen its liquidity position in order to maintain compliance with the covenanted finance service cover ratio (FSCR) of 1.25 times, a requirement that commences from June 30, 2018 and runs throughout the remaining tenure of the restructured sukuk.
As at 8MFY2016, the company’s cash and cash balances stood at a low RM26.6 million relative to its financial obligations. MARC remains concerned on SDEB’s sizeable obligations under the concession agreement to widen and upgrade the Cahaya Baru-Pasir Gudang and Ulu Tiram-Cahaya Baru stretches in 2016 and 2017 respectively. However, due to the low usage of the aforementioned stretches, SDEB is seeking a deferment from the government as it will need to incur costs of about RM373.6 million to carry out the upgrading works. The sukuk holders have given SDEB an extension until June 30, 2016 to obtain approval, failing which a technical breach would occur.
The stable outlook reflects SDEB achieving sustainable traffic performance and timely receipt of government compensations as demonstrated in the recent years. Any revision to the rating and/or outlook would depend on the outcome of deferment on the upgrading works or any material deviations from the assumptions set out in the projections.
Interested?
View MARC's list of rating definitions (PDF)
Subscribe to:
Posts (Atom)