Capital markets executive summary | Wed 6 Dec 2023

Capital markets executive summary | Wed 6 Dec 2023

KLK obtains RM500m sustainability-linked loan from Maybank

Kuala Lumpur Kepong Bhd (KLK) secured its first sustainability-linked loan (SLL) for general working capital purposes. Maybank structured the SLL to align KLK’s financial strategy with its commitment to environmentally and socially responsible practices outlined in its sustainability commitments. The loan has a pricing adjustment mechanism that is benchmarked against the achievement of predetermined sustainability performance targets. The SLL adheres to the Sustainability-Linked Loan Principles 2023 issued by the Loan Market Association, Asia Pacific Loan Market Association, and Loan Syndication and Trading Association. The key performance indicators reflect KLK’s goal of reducing its greenhouse gas intensity. KLK closed at RM21.38.

Cellco’s AA and MARC-1 ratings affirmed

The company is a funding vehicle for parent Stealth Solutions Sdn Bhd, which is an independent tower company. MARC Ratings affirmed the ratings of the RM520m Issue 1 from the company’s RM1b sukuk ijarah programme, which is backed by 531 telco towers. The long-term leases with major telco players have an average remaining life of 8.2 years excluding renewal. The number of towers increased from 543 in Jun 2022 to 547 in Jun 2023. The number of tenants rose from 876 to 914. The tenancy ratio was up from 1.6 times to 1.7 times. Revenue contribution from the top 4 telcos was 81% in 1H2023. There is low non-renewal risk because the towers are mission-critical infrastructure and the switching cost is high. Stealth is exposed to the risk of the landowners not renewing the ground leases on which their towers are erected. In MARC’s sensitised cashflows, average finance service coverage ratio is 3 times and minimum finance service coverage ratio is 2.3 times, above the 1.5 times covenant.
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Edra Energy’s AA3 sukuk rating affirmed

RAM Ratings affirmed the rating of the company’s RM5.085b sukuk wakalah. The company’s 2,242MW combined-cycle gas turbine power plant in Alor Gajah, Melaka began commercial operations on 28 Feb 2022. The rating reflects parent Edra Power Holdings Sdn Bhd’s (rated AA1) letter of undertaking that ensures sufficient liquidity to maintain the company’s annual finance service coverage ratio (FSCR) at a minimum of 1.50 times. From 2022-7M2023, the company was eligible for full available capacity payments and passed on fuel costs on meeting the heat rate requirements. Notwithstanding, the scheduled outages to rectify fleet-wide defects could force penalties in 2024. These issues are being addressed according to General Electric’s recommended action plan. In RAM’s sensitised cashflow projections, Edra Energy may need RM1.22b from Edra Power in 2024-2034 to keep its FSCR above 1.50 times. The company’s base case, however, does not expect any liquidity issues and the company is able to distribute RM1.86b in dividends from 2024-2038. In Jul 2023, Edra Power had RM95m and USD245m untapped credit facilities, and RM1.52b unencumbered cash. Its company-level gearing ratio is 0.01 times and consolidated gearing ratio is 0.67 times. Edra Energy has RM770.17m cash at end-Jul 2023, enough for RM478.35m in financial obligations within the next 12 months including RM215m sukuk profit and principal due in Jan 2024.

Westports’ AAA sukuk rating affirmed

RAM Ratings affirmed the rating of the company’s RM2b sukuk musharakah programme (2011/2031), which reflects its position as the operator of Malaysia’s largest container handling terminal and a key transhipment hub in the region, its operational performance and financial metrics. The privatisation agreement with the Port Klang Authority and the government expires in 2054. Container throughput declined slightly in 2022 but grew 7.2% year-on-year in 9M2023. The company is exposed to concentration risk as half of its throughput comes from 4 shipping liners within the Ocean Alliance. In Jul 2023, the Cabinet approved the Westports 2.0 expansion entailing 8 new container terminals which will double the handling capacity in the next 3 decades. The company is estimating RM5b capital expenditure including the port expansion in 2024-2028, which will be funded by debt, internal funds and equity. The increase in debt will pressure the company’s financial profile and reduce the rating buffer. The counter closed at RM3.53.

Singapore’s GIC may invest in Apollo’s structured finance business

The Singaporean sovereign wealth fund is in discussions on making an investment in Atlas SP Partners, which packages car loans, mortgages and other debts into bonds that it issues to investors. It needs funding to bridge the asset acquisition and the bond sale, and is raising capital to grow its balance sheet to more than USD50b (RM233.3b) from about USD40b in Feb. Apollo Global Management Inc, which bought Atlas from Credit Suisse, had earlier announced Abu Dhabi Investment Authority’s entry. In Oct, Atlas and other investors agreed on a USD1.1b delayed-draw mortgage facility for open air shopping centre owner Site Centers Corp. The company led a USD200m warehouse facility for Above Lending, which gives out consumer instalment loans. It also led a securitisation exercise for Equify Financial, which provides equipment financing.