RAM Ratings reaffirms AA2 rating of UEM’s sukuk

Published on 18 Dec 2019.

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RAM Ratings has reaffirmed the AA2/stable rating of UEM Group Berhad’s (UEM or the Group) IMTN Programme of up to RM2.2 bil (2012/2042), issued through funding vehicle United Growth Berhad (United Growth). The reaffirmation reflects the stabilising credit metrics of UEM (United Growth’s parent), as highlighted by its performance in 1H FY Dec 2019. We expect the Group’s operating cashflow debt coverage (i.e. funds from operations debt coverage or operating cashflow debt coverage (OCFDC)) to be above the rating threshold of 0.10 times over the next year.

The rating also incorporates a moderately high likelihood of government support if required, as defined under RAM’s criteria for rating government-linked entities. Being wholly owned by Khazanah Nasional Berhad (Khazanah), UEM boasts an impressive corporate lineage. Khazanah has been consistently demonstrating its support for the Group. Since January 2019, UEM has been helmed by Managing Director Dato’ Izani Ghani, the former executive director of Khazanah’s investments division. Meanwhile, UEM unveiled a leaner board this year; all three external board members are representatives from Khazanah. Looking ahead, we expect the two entities to maintain their strong links.

In fiscal 2018, UEM’s construction and cement operations sank deeper into the red amid significant operating losses and impairments. The Group’s expressway operations had been affected by lower dividends from its tolled-road JV - PLUS Malaysia Berhad (PMB) - following PMB’s stepped-up sukuk principal repayments. As a result, the Group’s OCFDC stayed subdued at 0.09 times (fiscal 2017: 0.06 times), despite lumpy land sales by its property arm (UEM Sunrise Berhad, UEM Sunrise). That said, more substantial cash proceeds from its Australian property projects allowed UEM Sunrise to pare down some of its debts in 1H FY Dec 2019, thus relieving the pressure on its credit metrics. As at end-June 2019, the Group’s gearing ratio and OCFDC came up to a respective 0.69 and 0.20 times (annualised) (end-December 2018: 0.75 and 0.09 times). 

Going forward, dividends from PMB – historically a major income earner for the Group – are likely to be curtailed by increasing principal repayments. The impact from the potential 18% toll reduction for Projek Lebuhraya Usahasama Berhad’s (PLUS) highways (as announced under Budget 2020) on UEM is still uncertain, pending further details. The toll reduction could further crimp distributions from PMB to the Group, although the effects may be moderated by PLUS’s cost-cutting efforts. 

On a brighter note, UEM recently announced the divestment of its entire 55% interest in PT Lintas Marga Sedaya (PT LMS; the concessionaire for the Cikopo-Palimanan highway, one of the longest tolled road in Indonesia). The sale was completed in November 2019. Post divestment, the Group’s credit metrics will benefit from the deconsolidation of PT LMS’s hefty RM2.4 bil debt load (around 26% of the Group’s total borrowings as at end-December 2018). 

All in all, UEM’s gearing ratio is anticipated to ease to about 0.5 times while its OCFDC is envisaged to hover around 0.15 times over the next year. The resultant headroom will provide some buffer against any potential deterioration in the Group’s performance amid the challenging business landscape and regulatory uncertainties.   

Wholly owned by UEM, United Growth had been set up to raise the IMTN. The sukukholders are effectively exposed to UEM’s credit risk through an irrevocable and unconditional purchase undertaking, as reflected by the rating of the IMTN.


Analytical contact
Amy Lo 
(603) 3385 2509

Media contact
Padthma Subbiah
(603) 3385 2577


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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