RAM Ratings has reaffirmed the respective AA1/Stable ratings of YTL Corporation Berhad's (YTL Corp or the Group) RM500 million MTN Programme (2004/2019) and RM2 billion MTN Programme (2013/2038). RAM places greater emphasis on the Group's company-level credit metrics, which held up within our expectations in FY Jun 2017. The bulk of debts of YTL Corp's operating entities is concession- or real-estate investment trust (REIT)-related and non-recourse to the holding company, which forms the basis for this approach. As the credit profiles of YTL Corp and its subsidiary, YTL Power International Berhad (YTL Power), are perceived to be very closely linked, any deterioration in YTL Power's credit profile would have a negative impact on YTL Corp's (and vice versa).

The ratings reflect YTL Corp's strong business profile, backed by its diversified earnings base as a conglomerate. Steady contributions from YTL Corp's water and sewerage business as well as stable and predictable income from its REITs alleviate the earnings downside stemming from the competitive industry landscape in which the Group's Singaporean power and local cement divisions operate. The ratings also take into account substantial unencumbered cash residing at YTL Power's intermediary companies which can be readily repatriated to YTL Corp as and when needed to service company-level debts. 

In FY Jun 2017, YTL Corp's core businesses maintained their strong operating track records, with the water and sewerage division outperforming regulatory benchmarks, and power plants under YTL Power preserving high availability levels. However, the performance of its Singaporean power segment under YTL PowerSeraya Pte Ltd has deteriorated due to excess generating capacity in the market, which had caused the segment's generation market share to trend downwards.

YTL Corp boasts a superior liquidity position, with substantial cash and cash equivalents against external short-term debts. The bulk of the cash resides withwer, which reported higher unencumbered cash reserves of RM10.77 billion as at the same date (end-June 2016: RM8.65 billion). We derive substantial comfort from YTL Corp's ability to tap its subsidiaries for dividends, given the Group's centralised treasury function. 

YTL Corp's balance sheet remained strained by a high debt level, which surged to RM43.14 billion as at end-June 2017 due to new debt raised, partly to fund the equity portion of the Group's Jordanian power plant. Over the next 5 years, YTL Corp's debt load is expected to increase further to fund the construction of a power plant in Indonesia with a project cost of US$2.7 billion. Notwithstanding the additional debts to be raised, we expect YTL Corp's and YTL Power's combined operating cashflow net debt coverage metric to stay robust over the next 5 years.  

 

Analytical contact
Chin Wynn, CFA
(603) 7628 1170
[email protected]

Media contact
Padthma Subbiah
(603) 7628 1162
[email protected]

 

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 soptions 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 2018 by RAM Rating Services Berhad

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