Malaysia MARC Upgrades Ranhill Debt Rtgs14 January 2005
MARC has upgraded the short and long term ratings of Ranhill Berhads ("Ranhill") partially underwritten RM300.0 million Murabahah Commercial Papers (MCP)/ Murabahah Medium Term Notes (MMTN) to MARC-1ID/A+ID respectively.
The upgrade is underpinned by the Group's diversification into the power and water sectors which provide a stable income stream to mitigate the cyclical nature of the construction industry and a stronger balance sheet arising from the acquisition of these asset-based businesses.
The ratings are also supported by the Group's steady financial profile, decreasing debt leverage position and strong order book.
During the last fiscal year, the Group completed the acquisition of Ranhill Power Bhd (RPB) (previously known as EPE Power Corporation Berhad).
RPB's 70.0% subsidiary, Ranhill Powertron Sdn Bhd (previously known as Powertron Resources Sdn Bhd), owns and operates a 120MW open-cycle gas-fired power plant in Sabah thus marking the Groups entry into the power generation business.
In addition, Ranhill had also completed a Partial Conditional Offer (PCO) exercise for Ranhill Utilities Bhd's (RUB) shares, making RUB a 70.0% subsidiary in October 2004.
RUB holds a 30-year concession to provide water supply services in the state of Johor via its wholly owned subsidiary, SAJ Holdings Sdn Bhd.
To date, Ranhill Group's portfolio of outstanding contracts in hand amounted to about RM1.6 billion of which about RM0.5 billion is attributable to the Melut Basin Oil Development in Sudan for the construction of an oil and gas facility.
Ranhill is insulated from Sudan's sovereign risk as payments are made off-shore (in Euros) by Petrodar Operating Company Ltd., a 41.0%- and 40.0%-owned company by China National Petroleum Corporation and PETRONAS respectively.
In addition, the site of the project is situated far-off from the troubled Darfur region hence minimizing the possibility of work interruption.
Despite slower activities in the construction sector, revenue grew by 2.9% to RM792.9 million, with the engineering, procurement and construction (EPC) division contributing 62.9% followed by the project management and construction management (EPCM /PMC) division at 24.9% respectively.
Although profitability was moderated by high costs incurred in relation to its expansion exercise, operating profit margin remained in double digits at 10.9% for FY2004.
For FY2004, debt leverage ratio rose to 1.7 times upon the consolidation of RPB into the group.
However, following the completion of the PCO of RUB's shares which enlarged its paid-up share capital and share premium accounts, Ranhills shareholders funds rose to RM939.8 million, lowering its debt-equity ratio to 0.63 times.
The group's cash flow position reversed into the black in FY2004 after recording three years of cash deficits from operations, due to an easing on the groups working capital requirements.
The cash flow projection, however, is sensitive to various delays in cash receipts.
Liquidity risk is somewhat mitigated given that the MCP's are fully underwritten up to a nominal value of RM120.0 million coupled with a structured mechanism to capture proceeds for the repayment of the MMTN's under each tranche.
Moving forward, the EPC division is expected to continue to be the main revenue generator for the Group in the near to medium term.
Future earnings are expected to be less volatile given that about 36.0% of revenue will be derived from regulated industries.
Profitability, however, will largely be driven by the water division despite its relatively lower contribution to the Group's revenue base.
Source: Dow Jones via Yahoo
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