Thursday, June 9, 2011

S&P affirms Ranhill's rating, outlook stable

KUALA LUMPUR: Standard & Poor's Ratings Services affirmed its 'B-' long-term corporate credit rating on RANHILL BHD [] while the outlook was stable.

'The rating was removed from CreditWatch, where it had been placed with negative implication on Dec. 30, 2010. We then withdrew the rating at the company's request,' said the international ratings agency on Thursday, June 9.

S&P also said it withdrew the 'CCC+' issue rating on the US$220 million, 12.5% senior unsecured notes due October 2011, issued by Ranhill (L) Ltd., on their full, voluntary early redemption on June 6, 2011. Ranhill guaranteed the notes.

"We affirmed the rating and removed it from CreditWatch because we believe Ranhill's full repayment of the US$220 million in senior unsecured notes has improved its liquidity," said S&P's credit analyst Andrew Wong. "Nevertheless, we believe Ranhill's liquidity remains less than adequate."

Ranhill's unit Ranhill Power Sdn Bhd issued RM800 million in guaranteed sukuk with a tenor of two to 15 years. Ranhill borrowed funds from Ranhill Power to help finance the redemption of its notes.

He said the long-term and staggered nature of refinancing better matched Ranhill's debt maturity to the stable cash flows from its utilities business.

'In our view, the increasing contribution of the utilities business would offset the risk from engineering and CONSTRUCTION [] (E&C) projects, gradually improving Ranhill's operating performance.

'Ranhill's financial risk profile is highly leveraged, in our opinion. For the 12 months to March 31, 2011, the company's ratio of adjusted debt to EBITDA was more than 6.0 times and debt to total capital was 60%,' it said.

S&P said the rating reflects Ranhill's exposure to the high-risk E&C business and substantial client concentration. The company's stable utility operating concessions in Malaysia and moderate business diversity partly offset these weaknesses.

'The stable outlook reflects our view that Ranhill will be able to meet its debt maturities over the next six to 12 months because of the long-term nature of the funding for the full repayment of its notes,' it said.

However, S&P cautioned that it might lower its rating if the company's liquidity is unlikely to improve;'' customer receipts or project completion get materially delayed.

The ratings agency also said while the potential for an upgrade was limited, it could raise the rating if Ranhill's liquidity strengthened and its credit protection measures improved, such that its debt-to-EBITDA ratio is consistently at, or below, 4.0 times.

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