IJM's outlook downgraded to negative, debt notes reaffirmed by MARC

MARC: IJM Corp outlook downgraded to negative

KUALA LUMPUR: Malaysian Rating Corp (MARC) has affirmed its AA- rating on IJM Corp Bhd’s RM1 billion debt notes but downgraded its outlook to negative from stable.

The ratings agency said decline in palm price to current low levels of RM2,200 per tonne and the weak near-term outlook of the sector would likely drag IJM’s plantation division’s earnings.

MARC also noted that the slowdown in the property sector has seen demand moderating at several of IJM’s projects.

MARC said IJM's RM1 billion debt notes involved the commercial paper/medium-term notes programme (CP/MTN).The outstanding notes under the programme comprise RM300 million CPs and RM250 million MTNs.

“IJM's borrowings have steadily increased, standing at RM6.3 billion as at end-December 2014,” MARC said, adding at the holding company level, the borrowings amounted to RM1.3 billion.

The rating agency highlighted IJM’s funding of infrastructure projects and capital requirements for its oil palm plantings in Indonesia could further pressurise its credit profile.

On the other hand, MARC observes that IJM’s orderbook for construction division has improved to about RM7.2 billion as at end-financial year 2015. “The improved prospects for the construction division may provide some buffer against weaker performance in the other divisions,” it said.

Going forward, MARC may raise the group's outlook to stable if it is able to show financial resilience in restoring cash flow protection measures.- New Straits Times

IJM’s debt notes rating reaffirmed, MARC also revises the company's long-term rating to negative from stable 

PETALING JAYA: Malaysian Rating Corp Bhd (MARC) has affirmed its AA- rating on IJM Corp Bhd’s RM1bil debt notes.

In a statement yesterday, MARC said it had also revised IJM Corp’s long-term rating to negative from stable, due to the challenging outlook for the company’s core business.

“The negative outlook incorporates the challenging prospects for IJM group’s core businesses, namely, the palm oil and property development sectors, from which the group generated a combined 45.3% and 60.6% revenue and pre-tax profit for fiscal 2014,” said the rating house.

MARC added that the sharp decline in palm oil prices from last year and the weak near-term outlook for the sector would drag the group’s plantation division earnings.

“The sharp decline in palm oil prices since April 2014 from RM2,800 per tonne to about RM2,200 per tonne currently and the weak near-term outlook for the sector would further weigh on the group’s plantation division earnings.”

The rating agency also said the slowdown in the property sector had seen demand moderating for several of IJM’s property development projects.

“Against this backdrop, MARC observes that group borrowings have steadily increased, standing at RM6.3bil as at end-December 2014. At the holding company level, its borrowings stood at RM1.3bil as at end-December 2014,” it said.

Meanwhile, MARC said the RM1bil debt notes involve the commercial paper/medium-term notes programme (CP/MTN). The outstanding notes under the programme comprise RM300mil CPs and RM250mil MTNs.

It said the funding for the group’s infrastructure projects and capital requirements could add further pressure on its credit profile.

MARC noted, however, that the group’s orderbook for its construction division had improved to about RM7.2bil as at end-financial year 2015.

“The improved prospects for the construction division may provide some buffer against the weaker performance of the other divisions,” it said.

Going forward, the rating agency said it may revise the group’s outlook to stable, if the group was able to show financial resilience in restoring cashflow protection measures, reflecting the credit strength.

“The long-term rating, however, could be lowered should key financial metrics deteriorate due to weakening performance of key business segments and/or additional increase in borrowings,” it said.

Separately, BIMB Securities Research said it was optimistic on the related-party transaction involving the transfer of The Light Waterfront development in Penang from Jelutong Development Sdn Bhd to Aura Hebat Sdn Bhd (AHSB). Both companies are subsidiaries of IJM Corp.

“We are positive on the development, as it will provide an avenue for prodigious development on the land.

“No significant impact to our 2015 and 2016 earnings forecast, as construction will start later in the year,” said the research house.

AHSB will acquire The Light Waterfront development from Jelutong Development, an 80%-owned subsidiary of IJM Properties Sdn Bhd, for RM402.8mil, subject to, among others, the receipt of documents of title to the property from the relevant Penang authorities..

Sources: The Star/Asia News Network