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Reorganised cement operations have no impact on ratings of YTL Corp and Kedah Cement

Published on 27 May 2021.

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RAM Ratings does not expect the proposed reorganisation of YTL Corporation Berhad’s (YTL Corp or the Group) cement and ready-mixed concrete businesses to affect the ratings of the debt facilities under YTL Corp and its indirectly owned subsidiary, Kedah Cement Sdn Bhd. 

Under the proposed reorganisation, YTL Corp’s 98%-owned subsidiary, YTL Cement Berhad, will dispose of all its cement and ready-mixed concrete businesses to the latter’s 77%-owned Malayan Cement Berhad (MCB). The total consideration of RM5.2 bil will be satisfied by a RM2 bil cash payment, with the balance covered by the issuance of MCB shares and irredeemable, convertible preference shares.  

The proposed reorganisation will enable the Group to streamline its cement and ready-mixed concrete operations under MCB while reaping synergistic benefits from its expanded capacity and operational footprint; YTL Cement acquired MCB in 2019. Despite MCB’s additional borrowings to fund the cash payment to YTL Cement, YTL Corp will feel minimal financial impact at group level. YTL Cement will utilise most of the RM2 bil cash proceeds to repay its debts. As such, the Group’s overall debt load will stay largely unchanged. 

As a pivotal and fully owned subsidiary of MCB, Kedah Cement’s credit profile reflects its parent’s. In turn, MCB’s ratings mirror those of YTL Cement’s. RAM expects MCB’s credit metrics to remain supportive of its AA3/P1 ratings despite the heftier debt burden after the completion of the said transactions. Its gearing ratio will rise to 0.7 times post-reorganisation (end-December 2020: 0.39 times), albeit still manageable. From YTL Cement’s perspective, overall indebtedness remains relatively unchanged, and projected operating profit before depreciation, interest and tax debt coverage ratio is expected to stay strong.

Table 1: Issue ratings of YTL Corp and Kedah Cement

Entity

Issue

Rating(s)/outlook

YTL Corp

  • RM2 bil Medium-Term Notes (MTN) Programme (2013/2038)
  • RM5 bil Commercial Papers Programme and MTN Programme (2019/2044)

AA1/negative*

AA1/negative/P1*

Kedah Cement

  • RM500 mil Sukuk Wakalah Programme (2017/2024)

AA3/stable/P1

* The negative outlook reflects the pressured profitability and dividend-paying capacities of YTL Corp’s various business units due to multiple headwinds, exacerbated by the impact of COVID-19.

 

Analytical contacts
Thong Mun Wai
(603) 3385 2522
MunWai@ram.com.my

Karin Koh, CFA
(603) 3382 2508
karin@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

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.

Published by RAM Rating Services Berhad
© Copyright 2021 by RAM Rating Services Berhad



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