Gamuda proposes RM900m Islamic debt notes

KUALA LUMPUR: Gamuda Bhd has proposed a total of RM900 million in Islamic debt notes, available in two programmes.

The programmes are a RM800 million Islamic Medium-Term Notes (MTN) Programme (2010/2035) and RM100 million Islamic Commercial Papers (CP) Programme (2010/2017), for which RAM Ratings has assigned preliminary ratings of AA3 and P1 respectively, with a stable outlook.

At the same time, RAM Ratings reaffirmed the respective long- and short-term ratings of AA3 and P1 for Gamuda's existing RM800 million 2008/2028 MTN and RM100 million 2008/2105 CP with a stable outlook.

In a statement on Monday, Oct 11, RAM Ratings said the ratings reflected Gamuda's established reputation within the local and overseas construction industries.

It said Gamuda's outstanding construction order book stood at RM4.37 billion as at end-July 2010, which should see it through the medium term.

"Gamuda's established name in the construction industry, coupled with its strong operating track record, places it in a good position to secure some of the projects under Budget 2010, high-impact projects under the Tenth Malaysia Plan, and some of the high-priority, entry-point projects under the Economic Transformation Programme (ETP).

"The Group is also a reputable township developer and enjoys stable dividend income from its mature concession assets," said RAM Ratings' head of real estate and construction ratings Shahina Azura Halip.

RAM Ratings said on the other hand, the ratings were moderated by the execution risk vis-à-vis the Group's electrified double-track railway project.

It said Gamuda's debt level was projected to peak at close to RM3 billion over the next two years, translating into a gross gearing ratio of 0.8 times.

"This will, however, be moderated to some extent by the Group's tendency to maintain considerable cash reserves.

"Meanwhile, its operating cashflow debt cover and funds from operations debt cover are envisaged to remain below 0.17 times, a level considered weak for its ratings. Elsewhere, the group will be substantially exposed to Vietnam as most its borrowings will go towards funding its property project there," said the rating agency.

RAM Ratings also said that in meantime, it was monitoring the developments vis-à-vis the restructuring of Selangor's water industry.

It said the debt ratings of Gamuda's water concession associate company Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) was downgraded from AA2 to BBB3 in September 2010, and that the ratings would remain on Rating Watch, with a negative outlook as long as the water restructuring efforts remain unresolved.

"Meanwhile, we note that the debt issue of Splash is on a non-recourse basis to the Group.

"We further highlight that the current assessment has not factored in the full impact of the proposed mass rapid transit (MRT) project, estimated at RM50 billion (including land-acquisition costs and rolling stocks)," it said.

The rating agency also pointed out that although Gamuda and MMC Engineering Group Bhd had been the original proponents of the MRT venture, it has yet to be awarded to any party.

RAM Ratings said it would reassess the impact on Gamuda's credit profile upon the availability of more concrete details.