KUALA LUMPUR: Malaysian Rating Corp Bhd has revised its outlook on SIME DARBY BHD []'s'' debt ratings to stable from negative as downside risks to the group's consolidated credit profile abate, particularly its energy and utilities (E&U) division's projects.
MARC said on Friday, June 17 the debt ratings were MARC-1ID /AAAID.'' The outlook revision affected the RM4.5 billion Islamic MTN programme (RM2.0 billion outstanding) and RM500 million Islamic commercial paper (ICP) programme (RM500 million outstanding) with combined limit of RM4.5 billion; and RM150 million underwritten Murabahah CP facility.
MARC said the E&U division's earnings before interest and tax (EBIT) of RM219.5 million for the nine months to March 31, 2011 marked a turnaround from the RM1.019 billion loss a year ago.
'The progress made on E&U division's problem projects since the rating agency's last rating action in October 2010 has alleviated MARC's major concerns about project execution risk and the potential for additional losses,' it said.
MARC said there was a RM98.5 million write-back of provisions for E&U division's Maersk Oil Qatar project in the third quarter of FY2011 following project close-out.
Its Qatar Petroleum project (where RM200 million in provisions were made in 3QFY2010) had moved into the close-out phase.
MARC added the Bakun dam project, in which Sime was the lead consortium member with a 35.7% interest, was scheduled for handover in end-2011.'' The India-based ONGC project was targeted for June 2012.
'Provisions of RM450 million made for the Bakun dam project and RM227 million for the ONGC project are expected to provide adequate buffer for actual cost overruns,' it said.
The ratings agency said it was positive about Sime's decision to exit from oilfield services. It divested Sime Darby Engineering Sdn Bhd's (SDE) oil and gas assets for a provisional cash consideration of RM695 million.
'MARC views the divestments as positive for Sime's consolidated credit profile in light of the operational challenges of its oilfield services business and huge prior year losses. The disposal of the oil and gas assets will allow Sime to focus on its core PLANTATION [], property, automotive and industrial businesses, and show improvement in its consolidated profitability.
MARC said it understood that Sime would still have to complete its outstanding contractual obligations notwithstanding the divestments.
For the nine months ended March 31, 2011, Sime's consolidated pre-tax profit doubled to RM3.4 billion (9MFY2010: RM1.7 billion) on consolidated revenue of RM29.7 billion (9MFY2010: RM23.7 billion).
MARC said the group recorded higher contributions from its plantation, industrial and motor divisions with increases of 18%, 30% and 90% respectively in EBIT. Its EBITDA interest coverage also strengthened to 17.4 times (9MFY2010: 14.3 times).
Sime's consolidated liquidity remains strong with cash and cash equivalents of RM4.1 billion (FY2010: RM4.4 billion) as of March 31, 2011 against short-term borrowings of RM3.2 billion (FY2010: RM3.3 billion).
MARC said the recent developments showed that Sime's credit metrics had been sufficiently restored and commensurate with its long-term rating of AAA.
Further factored into the stable outlook is Sime's strong commitment to preserve its current ratings.
MARC said on Friday, June 17 the debt ratings were MARC-1ID /AAAID.'' The outlook revision affected the RM4.5 billion Islamic MTN programme (RM2.0 billion outstanding) and RM500 million Islamic commercial paper (ICP) programme (RM500 million outstanding) with combined limit of RM4.5 billion; and RM150 million underwritten Murabahah CP facility.
MARC said the E&U division's earnings before interest and tax (EBIT) of RM219.5 million for the nine months to March 31, 2011 marked a turnaround from the RM1.019 billion loss a year ago.
'The progress made on E&U division's problem projects since the rating agency's last rating action in October 2010 has alleviated MARC's major concerns about project execution risk and the potential for additional losses,' it said.
MARC said there was a RM98.5 million write-back of provisions for E&U division's Maersk Oil Qatar project in the third quarter of FY2011 following project close-out.
Its Qatar Petroleum project (where RM200 million in provisions were made in 3QFY2010) had moved into the close-out phase.
MARC added the Bakun dam project, in which Sime was the lead consortium member with a 35.7% interest, was scheduled for handover in end-2011.'' The India-based ONGC project was targeted for June 2012.
'Provisions of RM450 million made for the Bakun dam project and RM227 million for the ONGC project are expected to provide adequate buffer for actual cost overruns,' it said.
The ratings agency said it was positive about Sime's decision to exit from oilfield services. It divested Sime Darby Engineering Sdn Bhd's (SDE) oil and gas assets for a provisional cash consideration of RM695 million.
'MARC views the divestments as positive for Sime's consolidated credit profile in light of the operational challenges of its oilfield services business and huge prior year losses. The disposal of the oil and gas assets will allow Sime to focus on its core PLANTATION [], property, automotive and industrial businesses, and show improvement in its consolidated profitability.
MARC said it understood that Sime would still have to complete its outstanding contractual obligations notwithstanding the divestments.
For the nine months ended March 31, 2011, Sime's consolidated pre-tax profit doubled to RM3.4 billion (9MFY2010: RM1.7 billion) on consolidated revenue of RM29.7 billion (9MFY2010: RM23.7 billion).
MARC said the group recorded higher contributions from its plantation, industrial and motor divisions with increases of 18%, 30% and 90% respectively in EBIT. Its EBITDA interest coverage also strengthened to 17.4 times (9MFY2010: 14.3 times).
Sime's consolidated liquidity remains strong with cash and cash equivalents of RM4.1 billion (FY2010: RM4.4 billion) as of March 31, 2011 against short-term borrowings of RM3.2 billion (FY2010: RM3.3 billion).
MARC said the recent developments showed that Sime's credit metrics had been sufficiently restored and commensurate with its long-term rating of AAA.
Further factored into the stable outlook is Sime's strong commitment to preserve its current ratings.
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