MALAYSIAN Rating Corporation Bhd (MARC) has assigned MARC-1/AA- ratings to IJM Corporation Bhd's proposed RM1 billion Commercial Papers/Medium Term Notes Programme.
Concurrently, MARC affirmed the MARC-1/AA- ratings on IJM's existing RM300 million Commercial Papers/Medium Term Notes Programme, the rating agency said in a statement today.
"The ratings reflect the Group's strong market positions in construction and property development and its diversified operations across industry segments and key markets, which help to balance the cyclicality that is inherent in many of its individual business segments.
"The ratings are moderated by the weaker near-term industry prospects for its construction and property divisions in addition to the increased business risk and additional leverage resulting from the expansion of its oil palm plantations operations in Indonesia," MARC said.
It said the substantial capital spending requirements of IJM’s 55 per cent-owned subsidiary, IJM Plantations Bhd (IJMP), through 2014 could limit IJMP’s dividend capacity, while the additional leverage taken on by IJM to fund the take-up of its entitlement under IJMP’s rights issue would exert pressure on IJM’s credit metrics at holding company level.
The stable rating outlook was supported by IJM’s strong liquidity position and good financial flexibility, and incorporated MARC’s expectations that IJM would continue to prudently manage its financial profile, it added.
The proceeds from the new programme will be used to finance IJM’s subscription of IJMP’s proposed renounceable rights issue with free warrants, subscription to its 50 per cent-owned Lebuhraya Kajang-Seremban Sdn Bhd's Redeemable Convertible Unsecured Loan Stocks and refinancing of existing borrowings.
"Assuming an initial drawdown of RM500 million from the new programme, this would raise its net debt-to-equity (DE) ratio to 0.65 times (FY2009: 0.59 times) against its covenanted net DE ratio of 1.25 times, and correspondingly IJM’s CFO interest coverage is expected to decline to 2.0 times (FY2009: 2.5 times)," said MARC.
It said IJMP had projected a total capital expenditure of RM602 million over the next five years until 2014 to develop approximately 33,687ha of land, including the construction of three palm oil mills in Indonesia.
No revenue was expected from this investment in the near term, although it was eventually projected to double IJMP’s estate size from its current cultivated area of 25,249ha in Malaysia, it said.
"In the longer term, IJMP’s expansion plans should positively impact revenue and consolidated operating margins, notwithstanding its exposure to cyclical palm oil prices," it said.
Since MARC’s last rating action on IJM in June, 2009, the Group has announced its succession plan for the Group’s CEO and Managing Director.
-- BERNAMA
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