RAM: YTL Corp and YTLPI ratings unaffected by Ranhill Utilities acquisition, to benefit from potential synergies

Published on 10 Jun 2024.

Share Tweet Email

YTL Power International Berhad’s (YTLPI) acquisition of a 31.42% stake in Ranhill Utilities Berhad (Ranhill Utilities), via its 70%-owned SIPP Power Sdn Bhd, will not affect the respective AA1/stable ratings of YTLPI and those of its parent, YTL Corporation Berhad (YTL Corp), given the headroom in their existing ratings and limited outlay of this investment. The acquisition cost of RM405.18 mil was paid via YTLPI’s cash reserves, raising YTLPI’s shareholding in Ranhill Utilities from 21.77% to approximately 53.19%. 

This triggers a mandatory takeover offer for the rest of the shares that it does not already own, expected to conclude in 3Q 2024. Even after considering a cash outlay of up to RM1.01 bil (assuming full take-up of the mandatory offer) without any corresponding cash inflows from the new acquisition, YTLPI and YTL Corp’s combined company-level debt coverage levels, as measured by operating cashflow to net debt coverage, are expected to remain within the minimum projected levels of 0.80 times and 0.60 times in the near term.  The entities’ liquidity and financial position remain strong. 

Operationally, RAM views the acquisition as strategic and poised to bring synergistic benefits to YTLPI’s core multi-utility and concession businesses. Ranhill Utilities is the sole water operator in Johor and the largest independent power producer in Sabah, with interest in large scale solar project through its first solar photovoltaic power plant in Perak. The earnings impact of the acquisition is, however, expected to be modest. In FY Dec 2023, Ranhill Utilities generated revenue and a pre-tax profit of RM2.28 bil and RM147.84 mil, respectively – about 10% and 6% of YTLPI’s respective top line and pre-tax earnings for fiscal 2023. RAM presently has a AA3/Stable on Ranhill Solar Ventures Sdn Bhd’s project financed debt ratings (Table 1).

RAM will continue to monitor the transaction through closing and provide updates if necessary.

Table 1: Issue ratings of YTL Corp, YTLPI and Ranhill Solar Ventures

* Ranhill Solar Ventures is indirectly wholly owned by Ranhill Utilities. Tranche 1 of its sukuk is a project-finance debt, solely reliant on cashflows
from a solar plant owned by sister company, Ranhill Solar I Sdn Bhd, for sukuk repayments.

 

Analytical contacts
Karin Koh, CFA
(603) 3385 2508
karin@ram.com.my

Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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 2024 by RAM Rating Services Berhad