Capital markets executive summary | Fri 27 Oct 2023

Capital markets executive summary | Fri 27 Oct 2023

Sarawak Plantation gets RM40m oil palm replanting facility

Wholly-owned subsidiary, Sarawak Plantation Agriculture Development Sdn Bhd, signed a master agency agreement, facilities agreement and memorandum of charge with AmBank Islamic for the Islamic banking facility. Concurrently, Sarawak Plantation executed a guarantee and indemnity agreement with the bank. The murabahah tawarruq facility will fund up to 75% of development cost of oil palm plantations in Sarikei, Mukah, Sibu, Niah and Miri, upgrading of the Niah and Mukah palm oil mills, and construction of estate buildings and infrastructure. The facility matures 8 years from 1st disbursement and monthly principal instalments begin after a 3-year grace period. The effective profit rate is cost of funds plus 0.75%. The security includes Niah and Bukit Kisi land parcels. The counter closed at RM2.05.

UEM Sunrise’s ratings affirmed

MARC Ratings affirmed the MARC-1 and AA- ratings of the RM4b Islamic commercial papers and Islamic medium term notes programme, and the AA- ratings of 2 RM2b Islamic medium term notes programmes. Positive rating drivers are its track record and sizeable landbank. There is a 1-notch uplift due to support from parent Khazanah Nasional Berhad. Moderating factors are rising costs and the challenging domestic property market. At end-Jun 2023, gross development value (GDV) for ongoing projects was RM4.6b with 90% in the Klang Valley. Overall take up rate was 82% excluding new launches. 92% of its 8,440-acre landbank is in Johor. In the short term, UEM Sunrise will launch RM1.5b GDV domestic projects, 50% in Iskandar Puteri, Johor, which is enjoying stronger demand with the RTS to Singapore and the special financial zone status of Forest City. The take up rate for ongoing projects in Iskandar Puteri averages 94%. Pre-tax profit climbed from RM68m in 1H2022 to RM72.6m in 1H2023 despite revenue falling from RM781.5m to RM604.7m. 2023 full year revenue should be RM1.5b, the same as 2022. RM1.8b domestic unbilled sales at end-Jun 2023 offers earnings visibility in the next 2 years. Gross debt-to-equity ratio weakened from 0.63 times to 0.67 times as borrowings grew from RM4.32b to RM4.66b. The counter closed at 82 sen.
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Cagamas’ corporate credit and issue ratings affirmed

RAM Ratings affirmed the AAA and P1 corporate credit ratings, the AAA rating of the RM60b medium term notes programme and the P1 rating of the RM20b commercial papers programme. The ratings reflect the company’s credit metrics and conservative business practices. In staying relevant to the market, Cagamas may take on higher risk, although it should receive government support if financial distress occurs. The company buys financing assets on a purchase with recourse (PWR) or without recourse (PWOR) basis to inject liquidity into the mortgage loans secondary market. PWR volume jumped 40% from RM13.8b in FY2023 to RM19.3b in FY2022. In 1H2023, PWR was RM9.9b. 81% of the PWR counterparties are at least AA-rated. The PWOR portfolio’s gross impaired loans ratio improved from 0.47% at end-Dec 2022 to 0.38% at end-Jun 2023, versus the banking industry’s 1.38% residential mortgage average. Net interest margin stayed the same at 0.8% in FY2022. At end-Jun 2023, total capital ratio fell to 34.9% and common equity tier-1 to 34%.

Banks snub oil refiners

Petronas’ Pengerang Energy Complex, among others, is finding it challenging to secure financing for projects with banks turning away from fossil fuels. Even though the businesses are profitable, plant owners must also present a transition to cleaner energy. Net-zero emissions goals are making lenders cautious of extending financing despite global crude demand at a record high. The robust demand and a contraction in capacity investments will cause a refining crunch. For the Pengerang refinery, Petronas has to include plans to use waste products as fuel and electrification of some operations. Singapore’s DBS confirmed the restrictions on oil and gas financing, although the underlying rationale is expectations of global demand falling in future. The bank requires applicants to state realistic energy transition plans before they can access financing.

CDS triggered after Country Garden missed coupon payment

The trustee of a dollar bond declared an event of default after Country Garden failed to pay a USD15.4m coupon by the end of a grace period. The Credit Derivatives Determinations Committees, which oversee the credit default swaps (CDS) market, ruled that a failure-to-pay credit event occurred on 18 Oct. Country Garden, which has USD186b of total liabilities, is symbolic of China’s property industry issues. It has engaged financial and legal advisers to assess its liquidity and formulate a plan. The company’s dollar notes have fallen from 80 cents in Jun to 4 cents because investors have largely given up hope of recovery. Its Hong Kong shares have plummeted 74% this year.