Thursday, October 13, 2011

Mydin plans RM350m debt notes, rated AAA by RAM

KUALA LUMPUR: Mydin Mohamed Holdings Bhd has proposed a RM350 million Danajamin-guaranteed Islamic debt notes which RAM Rating Services Bhd has assigned a preliminary enhanced rating of AAA(fg).

The ratings agency said on Thursday, Oct 13 the long-term rating of the medium-term notes programme (2011/2024) has a stable outlook.

'The enhanced rating reflects the irrevocable and unconditional financial guarantee from Danajamin Nasional Bhd (rated AAA/stable/P1), which enhances the credit profile of the proposed IMTN beyond Mydin's stand-alone credit risk,' it said.

Mydin's core business is the operation of hypermarkets, emporiums, bazaars, mini markets and convenience stores.

RAM Ratings said excluding the financial guarantee, Mydin's stand-alone credit profile is underpinned by its widespread presence throughout Peninsular Malaysia via its 88 outlets as at July 2011.

The outlets comprise of five hypermarkets/malls, 17 emporiums, two bazaars, 48 mini markets, eight convenience stores and eight franchise outlets.

RAM Ratings cautioned that while Mydin's current financial profile was healthy, its balance sheet and credit metrics were expected to deteriorate.

To finance its ambitious expansion plan, the group's debt burden was projected to balloon from RM87.10 million as at end-March 2011 to RM471.60 million in FYE 31 March 2012 and rising to about RM550 million to RM650 million in the next two years.

Mydin's gearing ratio is envisaged to stay above 1.0 times over the next three years while its operating profit before depreciation, interest and tax debt coverage ratio and operating cashflow debt coverage ratio are expected to be somewhat weak at around 0.1 times.

The ratings agency cautioned on the group's plan to open 13 hypermarkets over the medium term, which would mean two to three new hypermarkets a year between FY March 2013 and FY March 2017.

'This contrasts against its track record of only four hypermarkets in five years, and entails considerable execution risk and also makes demands on its management resources,' it pointed out.

RAM Ratings also noted that Mydin was exposed to intense competition within the local mass grocery retail sector, due to the large foreign-owned hypermarkets which can capitalise on the experience and networks of their established parents.

'Moreover, Mydin also has to contend with its local and more established peers. The keenly competitive environment and increasing contributions from the hypermarket segment to the group's performance have been compressing its OPBDIT margin, from 7.38% in FY March 2007 to just 3.10% in FY March 2011.

'Amid this challenging landscape, the group's mini markets and convenience stores have been incurring losses while its emporiums' sales and profits have been declining in the last few years. Going forward, the operating environment for hypermarkets is envisaged to remain competitive as key players implement their expansion strategies in a tussle for market share,' it said.

No comments:

Post a Comment