Capital markets executive summary | Wed 20 Dec 2023

Capital markets executive summary | Wed 20 Dec 2023

Dataprep to buy 70% of DACS Network

Subsidiary Solisnet Sdn Bhd acquired the shares of DACS Network Solutions Sdn Bhd (DNS) from Cloudaron Group Bhd for RM10.5m, which will be satisfied by issuing 82.68m new shares at 12.7 sen per share. DNS is a telecommunications industry dealer that provides and manages network connectivity services. Both companies are in a similar business and Dataprep plans to exploit DNS’ knowledge in the telecommunication industry and customer base. Separately, Dataprep proposed a private placement of up to 316.27m new shares or 30% of the enlarged issued shares. Total proceeds of RM40.17m at the illustrative price of 12.7 sen are for working capital and to repay bank borrowings. The counter closed at 14 sen, down 37% this year.

Malakoff Power’s sukuk programmes assigned MARC-1 and AA- preliminary ratings

MARC Ratings assigned the preliminary ratings to Malakoff Power Berhad’s (MPower) proposed RM1.2b Islamic commercial papers / Islamic medium term notes programmes and affirmed the AA- rating on its RM2.09b sukuk murabahah. The wholly-owned subsidiary of Malakoff Corporation Berhad is the operations and maintenance operator of Malakoff-owned independent power producers (IPP). The rating is based on the consolidated credit profiles and Malakoff’s Kafalah guarantee issued to the sukukholders. Some of the proceeds from the 1st issuance will finance 2 new renewable energy projects, the 84MW RP Hydro (Kelantan) Sdn Bhd to be completed in 2Q2026 and 22.1MW WTE Sg Udang Sdn Bhd to be completed in 2Q2027. The proceeds will also be for acquiring 49% in E-Idaman Sdn Bhd, a concessionaire for waste management in Kedah and Perlis. Operational cash flows from existing assets are enough to meet the sukuk obligations during the construction period of the new projects. In 9M2023, Malakoff’s revenue fell 7.8% year-on-year to RM6.8b because of lower coal prices, which led to a RM645.1m pre-tax loss. Cash flow from operations rose to RM1b and cash balances were RM2.9b at end-Sep 2023. Borrowings grew from RM8.7b at end-2022 to RM9.2b. MPower earns fixed and variable fees from the IPPs and revenue shrunk by 14.9% year-on-year in 1H2023 because GB3 was decommissioned and lower dispatch at other plants. High operating expenses caused a pre-tax loss of RM13.5m. The combined cash balances of MPower and Malakoff was RM471.3m at end-Nov 2023. Malakoff closed at 62 sen.
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Silver Sparrow misses principal payment

The company failed to pay the remaining RM61m due on 8 Dec 2023 issued from the RM515m guaranteed medium term notes (MTN) programme (2011/2023), which are irrevocably and unconditionally guaranteed by AAA-rated banks, namely Bank Pembangunan Malaysia Berhad (RM300m), Maybank (RM125m) and OCBC (RM100m). The AAA(bg) rating of the MTN programme reflects the credit enhancement from the bank guarantees. Silver Sparrow is a fundraising vehicle wholly owned by Aseana Properties Limited, which is a closed-end fund listed on the London Stock Exchange. Aseana’s announced on 8 Dec 2023 that Silver Sparrow is seeking a 60-day extension from bondholders due to the delay in disposing its Sandakan hotel and the Harbour Mall Sandakan. The RM165m sale was supposed to be completed by 30 Sep 2023 but has been held back by regulatory approvals. If an event of default is declared, the bondholders have 30 days to make a demand on the guarantees, after which the guarantors will have 10 business days from the claim notice to make the payment.

West Coast Expressway’s guaranteed sukuk AAA(bg) rating affirmed

RAM Ratings affirmed the rating of the company’s RM1b sukuk murabahah programme (2015/2036) irrevocably and unconditionally guaranteed by Bank Pembangunan Malaysia Berhad. WCE holds the concession for the West Coast Expressway linking Banting, Selangor to Taiping, Perak. Construction reached 88% at end-Jul 2023, 5 months late, because of land acquisition delays. The expressway should be completed by 14 Mar 2025. Average daily traffic (ADT) on 4 open sections grew from 57k vehicles in 2022 to 64k vehicles in 1QFY Mar 2024. RAM projects ADT of 234k vehicles in the 1st full year of tolling against WCE’s 381k projection. RAM’s revenue projection of RM164m is lower than the company’s RM400m. RAM’s sensitised cashflows show that shareholders have to inject cash from Feb 2025 to fund the remaining land and construction costs and to service some of the financial obligations. The counter closed at 86 sen.

Nippon Steel buys US Steel for USD14.9b

The all-cash price of USD55 per share is a 40% premium to last Fri’s close. Nippon, the world’s 4th biggest steel maker, is betting that Pittsburgh-based US Steel will benefit from the spending and tax incentives in President Joe Biden’s infrastructure bill. US Steel board of directors say that Nippon’s offer is better than Cleveland-Cliffs’, which raised its offer to the high USD40s in cash and stock. Nippon is paying 7.3 times US Steel’s 12-month EBITDA compared to the 7 times median in the steel industry. The transaction should close in 2Q or 3Q 2024 subject to regulatory approvals, although the United Steelworkers Union endorsed Cleveland-Cliffs and opposes Nippon. If regulators reject the deal, Nippon must pay US Steel a USD565m break-up fee.