Capital markets executive summary | Wed 15 Nov 2023

Capital markets executive summary | Wed 15 Nov 2023

Government to help introduce financing for energy efficiency projects

The Economy Minister sees a need to create an overall ecosystem for green projects beyond solar and hydrogen that will complement the National Energy Transition Roadmap (NETR). The government is working with the banking and financial industry on transition financing, which is separate from green financing. Transition financing takes care of, for example, energy efficiency equipment upgrades, which is not a green project, thereby making its scope bigger than green financing. The government has budgeted RM2b in financing for energy transition projects through the NETR, and the Economy Ministry is talking to financial institutions on the allocation for transition financing.

LBS Bina’s RM750m sukuk programme assigned AA- preliminary rating

Positive factors are the company’s sales track record in the affordable and mid-market residential segment, large unbilled sales and healthy cash flow metrics. Moderating factors are additional borrowings which raise leverage and exposure to property market cycles. The gross development value (GDV) of ongoing developments is RM7.1b at end-Aug 2023 while the take up rate is 76% because of the focus on affordable and mid-range properties in the Klang Valley with resilient demand. Most its ongoing projects are in the 633-acre KITA@Cybersouth township in Dengkil and the 470-acre LBS Alam Perdana township in Puncak Alam. Unbilled sales of RM2.5b at end-Jul 2023 drive medium term earnings and fund the construction of ongoing projects. In the next 2-3 years, there will be new launches in the existing Klang Valley developments comprising 13k units and GDV of RM7.1b. Operating profit margins kept steady at 16%-19% in the last 5 years. Cash flow from operations (CFO) interest coverage was 4.14 times and CFO debt coverage was 0.18 times at end-1H2023. Unencumbered cash was RM136.4m. Gross debt-to-equity ratio was 0.68 times and net was 0.44 times, although new borrowings will send debt up to RM1.25b in 2025. The counter closed at 56 sen.
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RAM releases rating criteria for non-operating insurance holding companies

RAM Ratings has released the new rating criteria for such holding companies that control insurance or reinsurance companies. The “Rating Methodology for Non-Operating Insurance Holding Companies” is available on RAM’s website in the Criteria & Methodology section. Since the insurance holding companies (IHC) do not commonly have substantial operations of their own and given the financial leverage at the IHC level, RAM’s assessment of non-operating IHCs revolves around the credit strength of their insurance or reinsurance subsidiaries. This is similar to the rating methodology employed for bank holding companies. The operating subsidiaries are highly regulated thereby restricting access to their funds. Therefore, the credit standing of a non-operating IHC is subordinated to the operating subsidiaries’ creditors. Notwithstanding, structural subordination will not be applied if the non-operating IHC has insignificant amount of indebtedness and the non-operating IHC’s ratings will not be notched down from the rating of the subsidiary. RAM alerted that it could upgrade the rating of a non-operating IHC in its portfolio based on the new rating approach.

Matrix Concepts gets RM512m AmBank financing facility

The Seremban-based property developer obtained the facility to finance the acquisition and development of 1,382.2 acres in Malaysia Vision Valley 2.0 in Sendayan, Negri Sembilan with a gross development value of RM7b. The project will be undertaken by a joint venture which is 85% owned by Matrix Concepts’ subsidiary MHCB Development (NS) Sdn Bhd and 15% by NS Corporation subsidiary N9 Matrix Development Sdn Bhd. In Aug, the company received shareholders’ approval to buy the land for RM460m from NS Corp, which acquired the parcel from Sime Darby Bhd. The exercise will be completed in FY ending 31 Mar 2024. 80% of the facility funds the land purchase while the balance is for infrastructure and as standby. The 1st launch will be in FY2026 and the project is expected to contribute 10% to Matrix Concepts’ earnings that year, rising to 70% from FY2029. Matrix Concepts should hit RM1.3b new sales in FY2024, up from RM1.2b in FY2023, with RM305.3m sales in 1QFY2024. Revenue jumped 40% from RM163.4m in 1QFY2023 to RM229.3m in 1QFY2024. Net profit rose 48% from RM31.69m to RM47.03m. The counter closed at RM1.61.

China plans USD137b injection for housing market

The People’s Bank of China (PBOC) would make staggered injections of CNY1t through policy banks, with the money ending up with consumers as low-cost financing to buy houses offered through affordable housing programmes. Pledged Supplemental Lending (PSL) and special loans could be rolled out this month. This is a major attempt to deal decisively with the biggest property downturn in decades that is holding back economic growth and consumer confidence, exacerbated by defaults by the nation’s largest developers. The PSL, with outstanding amount of CNY2.9t in Oct, extends low-cost funds to the developers of slum redevelopment projects to buy land from local governments, which in turn give cash subsidies to households whose old homes were demolished, so they can purchase newly-built or existing apartments, driving up demand.