RAM Ratings Assigns AA3/Stable Rating to Cahya Mata Sarawak's Proposed Islamic MTN Programme

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1. IB Press Release Service Published onIslamicBanker .com Publications: https://www.islamicmarkets.com/publications RAM Ratings Assigns AA3/Stable Rating to Cahya Mata Sarawak's Proposed Islamic MTN Programme 12 January 2017 Sarawak: RAM Ratings has assigned an AA3/Stable rating to Cahya Mata Sarawak Berhad's (CMS or the Group) proposed RM2.0 billion Islamic Medium Term Notes Programme (2017/2037). We have also reaffirmed the AA3/Stable/P1 corporate credit ratings of CMS. At the same time, RAM Ratings has withdrawn the rating assigned to CMS's proposed RM1.0 billion Sukuk Ijarah programme (2016/2036) which has not been issued. The ratings are supported by CMS's strong business profile as the sole cement manufacturer in Sarawak. The Group's somewhat diversified sources of income are also viewed favourably, albeit mostly being related to the construction sector. In the last 2 years, CMS has been enjoying strong growth in profitability from its construction material and trading as well as construction and road maintenance divisions. Backed by strong market position and vertically integrated operations, the Group is expected to benefit from the development of the Sarawak Corridor of Renewable Energy (SCORE) initiative as well as the Pan Borneo Highway project when it takes off. The ratings continue to reflect the Group's superior financial profile. CMS had been able to maintain a net cash position in the past 5 years despite being actively acquiring new investment assets. CMS's profit before tax for 9M FY Dec 2016 plunged 40% y-o-y from lower cement sales volume, higher cost of raw materials due to the weaker Ringgit as well as a substantial loss in its share of associate, mainly from 25%-held OM Materials (Sarawak) Sdn Bhd (OMS). Nevertheless, the Group's financial position remained robust with a gearing ratio of 0.11 times as at end-September 2016. CMS's funds from operations (FFO) debt cover also stayed strong at 0.92 times in 9M FY Dec 2016. Including an expected drawdown of RM500 million sukuk this year, the Group's financial profile is expected to remain comparable against AA3 peers. CMS is envisaged to maintain a healthy FFO debt coverage ratio of above 0.30 times and gearing ratio of less than 0.40 times. Moderating the ratings is the Group's geographical concentration risk. Given that its entire business operation is based in Sarawak, CMS's performance is dependent on economic conditions in the State. Moreover, as the Group's products are targeted at the property and construction industries, it also has to contend with the cyclical nature of these sectors. CMS's
2. IB Press Release Service Published onIslamicBanker .com Publications: https://www.islamicmarkets.com/publications growing investments in commodity processing ventures in Samalaju are also exposed to execution risk and volatile commodity prices. Elsewhere, being substantially owned by the family of Sarawak's Yang di-Pertua Negeri, Tun Abdul Taib Mahmud (formerly the chief minister of Sarawak), the Group is exposed to some degree of political risk. Any change in the State's political landscape could have an adverse impact on the Group. That said, we draw comfort from the Group's already-entrenched market position and its crucial role in Sarawak's overall economic development. At present, members of Abdul Taib's family hold a 39.6%-stake in CMS. Established in 1974, CMS is a Sarawak-based conglomerate listed on Bursa Malaysia. Starting off purely as a cement manufacturer, its core businesses now include trading in construction materials, construction and road maintenance and to a smaller extent, property development. CMS is directly involved in the Samalaju Industrial Park (SIP) via the provision of lodging services for the workers of SIP and its investments in a ferrosilicon and manganese smelter project as well as a phosphate plant. The Group is also involved in the development of a new township adjoining SIP. Elsewhere, CMS holds a 50% non-controlling interest in Sacofa Sdn Bhd, a telecommunications infrastructure provider. The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security's market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations. RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings' credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. Similarly, the disclaimers above also apply to RAM Ratings' credit-related analyses and commentaries, where relevant.
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