Published on 26 Apr 2023.
RAM Ratings has assigned an AAA/Stable rating to Johor Corporation’s (JCorp or the Group) proposed RM2 bil State-Guaranteed Islamic Medium Term Notes (IMTN) Programme. The programme is backed by an irrevocable and unconditional guarantee from the Johor state government. Johor’s state implicit strength is viewed to be robust and assessed as AAA. Concurrently, we have reaffirmed JCorp’s AAA/Stable/P1 corporate credit ratings and the AAA/Stable rating of its RM3.5 bil IMTN Programme.
Excluding the guarantee, JCorp’s credit profile remains strong, anchored by the Group’s status as the economic enabler for the state of Johor and its role in spearheading industrial development in Johor. The ratings also consider the solid operating track records of its food and restaurant segment and healthcare operations under QSR Brands (M) Holdings Bhd and KPJ Healthcare Berhad, respectively, as well as JCorp’s robust financial flexibility. Government support has been clearly demonstrated in the past through guarantees and letters of undertaking for JCorp’s borrowings, among others. JCorp is one of the very few state agencies to benefit from government-guaranteed borrowings.
At the company level, delays in planned land sales as investors take longer to reach investment decisions amid soft market conditions have strained operating cashflows. JCorp’s company-level interest coverage ratio of 1.1 times in FY Dec 2022 (FY Dec 2021: 2.7 times) was lower than expected. This metric could stay depressed in the next two years if land sales remain soft. JCorp is currently in advanced talks with investors for a lumpy land sale in Pengerang Industrial Park. Proceeds from the potential sale are not factored in our financial projections. Comfort is further derived from JCorp’s substantial financial flexibility and the demonstrated ability to access alternative liquidity in times of need.
As at end-September 2022, company-level gearing eased to 0.87 times, mainly due to an enlarged retained earnings base and lower debt levels (end-December 2021: 0.97 times), while the ratio of net debts to realisable net asset value stood largely unchanged at 0.57 times. Group-level gearing was 0.92 times as at end-September 2022 (end-December 2021: 0.91 times). We expect JCorp’s financial leverage to stay largely unchanged in the near term. Significant reduction in debts is only likely if the planned listings of some of its operating entities materialise.
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Thong Mun Wai
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Ratings on Johor Corporation