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The Star Online: Business


MARC assigns rating to Malakoff’s RM5.9b Islamic debt issuances

Posted: 12 Jan 2013 05:17 AM PST

KUALA LUMPUR: Malaysian Rating Corporation (MARC) assigned long-term and short-term programme ratings of AA-IS and MARC-1IS respectively to Malakoff Power Bhd's RM5.6bil Murabahah Securities Facility and RM300mil Islamic commercial paper (ICP) programme.

MARC said on Saturday the outlook on the ratings for the Sukuk Murabahah facility was stable.

MPower is a unit of Malakoff Corporation Bhd which has effective power generating capacity of 5,020 megawatt (MW) in the country.

MPower will acquire the power plant operation and maintenance (O&M) business of Malakoff and loan stocks in four independent power producers (IPPs) in which Malakoff has ownership interests ranging from 75% to 100% for RM4.17bil. The consideration of this sale will be funded by the issuance of the rated Sukuk Murabahah Facility. The balance of the sukuk proceeds amounting to RM1.23bil will be on-lent to Malakoff. Subsequent to this issuance, all of the holding company's senior debt will be retired.

The four IPPs, Tanjung Bin Power Sdn Bhd (TBP), Segari Energy Ventures Sdn Bhd (SEV), GB3 Sdn Bhd (GB3) and Prai Power Sdn Bhd (PPSB), respectively hold the concessions for the 2,100MW Tanjung Bin coal-fired power plant, the 1,303MW combined-cycle gas turbine (CCGT) Lumut power plant, the 640MW CCGT Lumut GB3 power plant and the 350MW CCGT Prai power plant.

MARC said the assigned ratings to MPower reflected the low business risk profile of MPower's operation and maintenance (O&M) operating subsidiaries, and the power plant portfolio which provides the majority of underlying cash flows that will service the Sukuk.

Another factor was the good operational performance of the power plant portfolio and its predictable stable cash flow generation.

MARC also pointed the base case minimum and average projected finance service coverage ratios (FSCR) of 1.04 times and 4.15 times at MPower and combined minimum and average projected debt FSCRs of 1.38 times and 10.31 times respectively, excluding Malakoff's operating subsidiaries.

The rating agency also said there was low payment deferral risk on the RM1.89bil of loan stocks held by MPower in SEV, GB3 and PPSB which have fairly low levels of outstanding project debt.

"The stable outlook reflects the power plant portfolio's long-term power purchase agreements (PPA) with a strong offtaker and dispatch profiles that are supportive to the issuer's credit profile and which provide stability in project-level cash flow generation.

"MARC also assumes that any additional sizeable investment to expand Malakoff's power plant portfolio will be followed or preceded by a strengthening of its capitalisation to ensure no material weakening of its financial profile unless the acquisition or investment is immediately accretive to its discretionary cash flow.

"The ratings or outlook could come under negative pressure if combined cash flow coverage declines below 1.30 times over the next 12 to 18 months or if Malakoff's financial profile deteriorates," said the rating agency.

Moody’s assigns A3 to Sime Darby, outlook stable

Posted: 12 Jan 2013 05:05 AM PST

KUALA LUMPUR: Moody's Investors Service has assigned a senior unsecured issuer rating of A3 to Sime Darby Bhd while the outlook for the rating is stable.

The international ratings agency said on Saturday this was the first time it has assigned a rating to the conglomerate.

"Sime Darby's rating recognises the strong cash flow generated by its core oil palm plantation business which has long-established operations in Malaysia and Indonesia," it said.

Moody's said the remaining 45% to 50% of EBIT was mainly from its industrial business and motor business.

Its industrial business involves supplying heavy equipment to the coal mining and construction sectors, with a focus on Australasia and China.

Its motors business comprises of a car assembly, distribution and dealerships with a focus on high end cars in China, Malaysia, Singapore and Hong Kong.

"Sime Darby is the largest listed palm oil plantation company and it is well-balanced in terms of upstream output and downstream refining and oleochemical capacity and its crop yields are among the best in the industry," said Moody's vice president - senior credit officer Alan Greene.

"Relative to other agribusinesses, the credit profile of palm oil is attractive given its position as the lowest cost vegetable oil, its high resistance to pests and diseases and the relative consistency of output over a period of 10 to 15 years once the trees reach maturity," said Greene, Moody's lead analyst for Sime Darby.

Sime Darby's diversification of revenues by geography is well-balanced with Malaysia, Australasia and China accounting for 69% of FY2012 revenues. While the customer concentration of Sime Darby's businesses is low, its industrial division and its motors division depend on maintaining their supply relationships with Caterpillar and BMW, respectively.

By contrast, both the sources of Sime Darby's EBIT and the disposition of its non-current assets (NCA) are geographically skewed, with Malaysian-based operations representing 56% and 59% of total EBIT and NCA, respectively in FY 2012.

The company's importance to Malaysia is also reflected in its current shareholding pattern which includes government linked investment companies. As at Dec 31, 2012, Permodalan Nasional Bhd (PNB) held a 52.3% stake and by the Employees Provident Fund (EPF) 11.9%. Although Moody's does not regard Sime Darby as a government-related issuer (GRI), it deems systemic support from Sime Darby's key shareholders to be strong and the rating reflects the importance of Sime Darby to the Malaysian economy and its savings programmes.

Analysis: Big flows into U.S. stocks may be sign of things to come

Posted: 12 Jan 2013 04:51 AM PST

NEW YORK: The biggest weekly inflow into U.S.-based equities mutual funds in more than 11 years could be a sign that stocks are coming back into favor for a broad swath of investors after lawmakers avoided the fiscal cliff, some top money managers said.

"We are at an inflection point where, especially in the U.S., you'll start to see net inflows into equities," said Margaret Patel, senior portfolio manager at Wells Capital Management, which oversees $331 billion in assets. "The risk-taker will be rewarded this year."

In the week ended Wednesday, investors in U.S.-based funds poured $7.53 billion into stock mutual funds while exchange-traded funds investing in equities gained $10.78 billion in new cash, according to data from Thomson Reuters' Lipper service.

The inflow into U.S. stock mutual funds was the biggest since May 2001, and the $18.32 billion aggregate injection of money into equities funds was the biggest since mid-2008.

Separately, EPFR estimated that net inflows into global equity funds, including ETFs, in the same week hit $22.2 billion - the highest since September 2007 and the second highest since comparable data began in 1996.

Since the U.S. Congress agreed on tax hikes for the higher paid and averted the fiscal cliff on January 1, the S&P 500 stock index has climbed more than 3 percent. Last year, including dividends, it returned about 16 percent.

BROKERS LESS CONVINCED

An increasing appetite for U.S. equities is seen by major investors as a sign of rising confidence in the U.S. economy but also an indication of how few appealing alternatives there are given that money market funds yield virtually nothing and bond yields have sunk.

Some brokerage executives are less convinced than the fund managers that sentiment has changed as they point to continued distrust among retail investors about the stock market and whether the odds are stacked against them. Many of these mom-and-pop investors are also very concerned about the impact of further battles in Washington over the debt ceiling and spending cuts.

Still, the fund managers, particularly fixed-income investors, have warned that the gains in bond prices in recent years cannot go on forever. Junk bonds and corporate debt "which we felt good about a year ago... we now feel OK about," said Tad Rivelle, chief investment officer of fixed income at money manager TCW, where he helps oversee $135 billion in assets.

The average yield on U.S. high-yield "junk" debt fell below 6 percent this week for the first time ever, according to the Barclays Capital High Yield bond index.

Loomis Sayles & Co Vice-Chairman Dan Fuss, one of the best-known bond fund managers in the world with $182 billion in assets under management, has been raising warning flags that an extended period of rising interest rates is on the horizon and bond investors should adjust their portfolios while they can. "U.S. stocks are the place to be relative to U.S. bonds, in general," Fuss said.

On January 1, after weeks of uncertainty and fears that the U.S. was going to be hit by big spending cuts and tax rises that would have sent the economy over the "fiscal cliff" and probably into a recession, President Barack Obama and Congress reached a deal that averted the most draconian of the measures. Most of the tax increases only hit the highest income Americans and spending cuts were postponed.

Patel said "relief" that taxes on capital gains and dividends didn't go up across the board encouraged many investors to put money back to work in stock mutual funds.

Retail investors may have an "aha" moment if they contrast 2012's equity returns against much weaker returns from money-market, municipal bond and other fixed-income holdings, said Barbara Reinhard, chief investment strategist in the private banking Americas division of Credit Suisse AG.

"It may give them confidence that the equity market is the place to go back to for wealth creation and capital appreciation," she said. "You might see a rotation attempting to catch up on the misses of 2012."

BITTER MEMORIES

In a report sent to some Credit Suisse advisers and clients this week, however, Patel acknowledged that many investors are more affected by the memory of losses than the hope of gains.

"Investors in this group, still reeling from the devastating equity market action during the financial crisis, remain very reluctant to invest in equities," she wrote.

Equally concerning is a tendency to believe that the fixed-income returns that sustained investors during the crisis can continue despite a more stable economy and declining bond returns, some brokerage executives said.

"At some point you have to think they will see stocks have been awfully good and there is no other game in town, but I said that last year, too," lamented Arthur Grant, chief executive of Cadaret Grant & Co, a Syracuse, New York-based broker-dealer that employs about 1,000 contract brokers.

He said he doubted that the past week was the turning point. "It's hard for me to imagine that a single week would make that much of a difference in people's concerns," he said. "They're incredibly concerned about the debt limit and getting our fiscal affairs in order, and it's much stronger than fiscal cliff fears because they knew that one way or another their taxes were going up."

While the higher paid got hit with substantial tax increases, many people are facing a more modest increase - through higher payroll taxes.

Fractious debates in Washington over raising the U.S. government's debt ceiling and cutting government spending raise fears of a U.S. government debt default that could throw global markets into frenzy, brokerage executives said.

"There is a lot of money sitting around in risk-free assets that can go into equities, and I think retail investors are getting more bullish," said Fred Tomczyk, chief executive of TD Ameritrade Holding Corp, the second largest discount brokerage. "The risk is that they will screw up in Washington."

In the latest week to January 9, investors still sought riskier bonds and pumped $1.11 billion into high-yield "junk" bond funds, the most since mid-September, according to Lipper. Investors also gave $2.16 billion to investment-grade corporate bond funds, while taking $1.07 billion out of U.S. Treasury funds, the most since October of last year.

EPFR's latest weekly figures showed a net $7.39 billion inflow into emerging market equity funds and $3.4 billion into world equity funds. Inflows into U.S. equity funds, at $10.35 billion, were at a six-week high. - Reuters

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