RAM reaffirms AAA(s) ratings of sukuk issues by Khazanah

KUALA LUMPUR: RAM Ratings has reaffirmed the AAA(s)/stable ratings of Rantau Abang Capital Bhd’s RM7 billion Islamic MTN Programme, Danga Capital Bhd’s RM20 billion Multi-currency Islamic Securities Programme as well as Ihsan Sukuk Bhd’s RM1.0 billion Sukuk Ihsan Programme.

Rantau Abang Capital, Danga Capital and Ihsan Sukuk, the funding conduits of Khazanah Nasional Bhd (Khazanah), had been incorporated for the sole purpose of facilitating the issuance of the Islamic securities.

“The enhanced ratings ultimately reflect the creditworthiness of Khazanah,” it said in a statement. “We view Khazanah to have a critical importance to the government given its strategic role in the country’s economy with its shareholdings in companies vital to the country.

“Coupled with its direct linkage to the GoM with the latter’s full ownership1 and through its board representation, we view Khazanah as an extension of the GoM and equate the Company’s rating to that of the latter.”

RAM said the suffix reflects the enhancement of the respective Issuers’ Islamic securities beyond their own credit profiles, based on the contractual obligations of Khazanah vis-à-vis its undertaking to top up any shortfall in meeting the expected income distributions and capital returns under the Islamic securities, upon maturity or a dissolution event.

In fiscal 2016, Khazanah’s portfolio realisable asset value (RAV) dropped 3.2 per cent year on year (y-o-y) to RM145.3 billion while its net worth adjusted (NWA) declined 6.2 per cent y-o-y to RM102.1 billion, although overall trend in long-run value creation remains positive.

“These were primarily due to general weaknesses in global market conditions which affected the telecommunications (Axiata Group Bhd) and, to a smaller extent, the aviation (Malaysia Airlines Bhd) and healthcare (IHH Healthcare Bhd) sectors,” it added.

“Although its dividend earnings improved to RM2.7 billion, it was eclipsed by the 35.1 per cent decline in its divestment gains.

“This, on top of unrealised losses in the fair value of its financial assets and further provisioning of RM1.55 billion impairment losses on its investments and receivables, mainly in relation to aviation, had slashed its profit before tax to RM4 million and turned its profit after tax into negative in fiscal 2016.”

In line with its strategy of seeking higher-yielding investments, RAM saw that Khazanah has been gradually increasing its exposure to higher-growth emerging markets and sectors as well as opportunistic pre-IPO investments, to yield better returns – albeit risker – within a shorter span.

With the present economic condition and additional risks from key uncertainties such as Brexit developments and the slow rollout of US tax reforms, there may be fewer opportunities to realise targeted investment returns over the near to medium term. Furthermore, we expect Khazanah to continue providing ongoing support for weaker investee companies.

During the same period, Khazanah helped in repaying Penerbangan Malaysia Berhad’s government-guaranteed bond issue of over RM4 billion (USD1 billion equivalent), significantly affected its net operating cashflow position. — Bernama