MARC downgrades IJM Corp’s long-term rating outlook


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KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has downgraded its outlook on IJM Corp Bhd’s RM1 billion commercial paper/medium-term notes programme (CP/MTN), while affirming the ratings of MARC-1/AA- on the programme. In a statement yesterday, the rating agency said the prospects for the group’s core businesses  of palm oil and property development  are challenging due to the decline in crude palm oil (CPO) prices  and the slowdown in the property segment.

“The sharp decline in palm oil prices since April 2014 from RM2,800 per tonne to about RM2,200 per tonne ... and the weak near-term outlook  ... would weigh on the plantation division’s earnings ... the slowdown in the property sector has seen demand moderating for several of IJM’s ... projects,” said MARC.

MARC noted that IJM’s (fundamental: 1.1; valuation: 1.4) borrowings rose to RM6.3 billion as at end-December 2014 (9MFY15) from RM5.6 billion at end-FY14. It said the potential funding requirements for its key infrastructure projects and capital expenditure could pressure its credit profile. MARC acknowledged the improved order book of about RM7.2 billion for the construction division despite margin pressures in the industry which “may provide some buffer against a weaker performance in the other divisions”.

“The negative outlook may be revised back to stable if IJM  [exhibits] financial resilience, particularly in restoring cash flow protection measures to better reflect the credit strength of an AA- rated issuer. The long-term rating could be lowered should key financial metrics deteriorate due to weakening performance of key segments and/or  increase in borrowings,” said MARC.

IJM closed up 0.27% at RM7.40 yesterday for a market capitalisation of RM13.15 billion.


This article first appeared in The Edge Financial Daily, on April 23, 2015.