RAM Ratings has reaffirmed the AA2/stable rating of UEM Group Berhad’s (UEM or the Group) IMTN Programme of up to RM2.2 billion (2012/2042), issued through funding vehicle, United Growth Berhad (United Growth).
The reaffirmation of the rating reflects our expectations that UEM will be able to keep its adjusted funds from operations debt cover above 0.10 times amid a lighter debt load. As at end-June 2018, the Group’s debts came up to a hefty RM9.2 billion, with an adjusted gearing ratio of 0.78 times.
The ratio is expected to ease as proceeds from the progressive completion of its two Australian property projects (since September 2018) and a land disposal in Johor are used to trim borrowings. In addition, none of the Group’s various segments need substantial debt funding for capex.
The rating also incorporates a moderately high likelihood of government support if required, as defined in RAM’s criteria for rating government-linked entities (GLEs).
UEM has a strong corporate lineage, being fully owned by Khazanah Nasional Berhad – the Government’s investment-holding arm. The Group’s important role is underpinned by its holdings of concessions in strategic local tolled roads and large tracts of land in Iskandar Puteri – a component of the Government’s Iskandar Malaysia economic corridor in Johor.
The rating also reflects UEM’s diversified operations and the strong business profiles of its key operating companies. The Group’s pre-tax profit swelled to RM635.48 million in fiscal 2017 from RM355.56 million the preceding year. The stronger showing of its expressways, property and asset facility management (AFM) segments had cushioned the losses of its cement and construction operations.
In 1H FY Dec 2018, the Group chalked up a pre-tax profit of RM262.37 million (+17% y-o-y), mainly attributable to the property and AFM segments. The sustained performance of these two segments, along with dividends from the Group’s toll-road JV – PLUS Malaysia Berhad (PMB) – towards the end of the year, will help it weather headwinds in the cement sector.
The rating is moderated by regulatory risks relating to toll-road assets, the loss-making positions of UEM’s construction and cement operations, the property arm’s high concentration in Iskandar Puteri, and heavy debts at PMB’s subsidiary which may affect future dividend payments to the Group.
Wholly owned by UEM, United Growth was set up to raise the IMTN. By virtue of an irrevocable and unconditional purchase undertaking, the sukuk holders are effectively exposed to UEM’s credit risk, as reflected in the rating of the IMTN.
Source Salaam Gateway