RAM reaffirms AAA rating of Khazanah’s RM10bil Islamic notes issued via Danga Capital

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KUALA LUMPUR (Sept 09): RAM Rating Services Bhd (RAM Ratings) has reaffirmed the AAA/stable rating of Khazanah Nasional Bhd’s RM10 billion Multi-Currency Islamic Securities Programme (ISP) through Danga Capital Bhd.

Danga, a trust-owned special-purpose vehicle, had been incorporated for the sole purpose of facilitating the issuance of the Islamic securities.

In a statement today, RAM Ratings said the rating reflects the credit strength of Khazanah in its role as the purchase undertaking obligor in the transaction.

Proceeds from the ISP had been utilised to purchase pools of identified syariah-approved shares and/or assets from Khazanah. The sovereign wealth fund will top up any shortfall in the income generated by the venture.

It has also undertaken to purchase specific portfolio units from Danga at a pre-agreed price, upon maturity or a dissolution event.

"RAM Ratings considers Khazanah as an extension of the Malaysian Government; the likelihood of extraordinary government support is deemed unquestionable.

"Our assessment also takes into account Khazanah’s sectorally diversified investment portfolio that comprises listed government-linked companies operating in stable and defensive industries, with dominant stakes in key economic segments. This yields recurring dividend income for Khazanah, along with superior financial flexibility in tapping the debt capital market for refinancing or additional funding," said the rating agency.

Khazanah’s revenue surged 49.9% year-on-year to RM7.1 billion in December 2013, on the back of special dividends from UEM Group Bhd and Valuecap Sdn Bhd.

"Moving forward, we do not expect this level of dividend income to be maintained. We envisage Khazanah’s dividend receipts to remain dictated by the performance of its investee companies, the progress of its divestment exercises and the overall market environment," said RAM Ratings.

"In the past, Khazanah had extended financial support to its weak, non-performing investee companies, including Malaysian Airline System Bhd (MAS) and SilTerra Malaysia Sdn Bhd. Going forward, the written-down investment amount/financial assistance may exert pressure on Khazanah’s profitability and balance sheet, particularly following MAS’ deep losses," it added.

While Khazanah’s debt level remained high at RM32 billion as at end-December 2013 compared with RM36.4 billion as at end-December 2009.