KUALA LUMPUR (April 24): Telekom Malaysia Bhd (TM) via its special-purpose vehicle, Tulip Maple Bhd, is issuing a US$750 million (RM2.684 billion) sukuk, the proceeds of which will be used to acquire an ownership interest in a portfolio of assets that comprises primarily of airtime vouchers, broadband vouchers and commodities.
Ratings agency Moody's Investors Service Singapore Pte Ltd has assigned a provisional (P)A3 rating, with a positive outlook on the sukuk issuance programme.
Moody’s added the rating of the sukuk are supported by TM’s A3 standalone issuer rating and A3 senior unsecured rating, as well as its assessment of a very high probability of systemic support.
“The outlook on TM's ratings is positive and therefore, the outlook on the sukuk trust certificates is also positive. A change in TM's ratings or outlook will automatically be reflected in the trust certificate ratings of the issuer,” said Moody’s in a media statement this evening.
Moody’s added the ratings on the individual sukuk certificates to be issued under the programme, will be subject to its review of the terms and conditions set forth in the drawdown supplements.
“Drawdown ratings may differ from programme ratings, if the terms and conditions of the issuance are materially different from those of the programme,” said the international rating agency.
Moody's also noted its sukuk rating does not express an opinion on the structure's compliance with shariah principle.
“For this, it (Moody’s) refers to the Fatwa provided by the shariah advisers for the (sukuk) programme,” it added.
Upward rating action at the sovereign level could result in positive rating action for TMB, said Moody's, unless there is a major adverse change in its fundamental credit profile and relationship with the government.
TMB's local currency issuer rating could also experience upward pressure, even in absence of a sovereign rating action, should TMB's fundamental credit profile significantly improve.
“In particular, we would like to see an improvement in its free cash flow, resulting in adjusted free cash flow (FCF)-to-debt consistently above 15% to 20%, and adjusted debt/EBITDA (earnings before interest, taxation, depreciation and amortisation) consistently below 2 times,” it said.
Given the positive outlook, Moody’s is of the view that a negative rating pressure is unlikely.
“However, the outlook could revert to stable if the outlook of the sovereign rating changes to stable, or if there is a major change in the company's relationship with the government of Malaysia.
“In addition, negative rating pressure on TM's standalone issuer rating could emerge, should its fundamental credit profile weaken due to the erosion of its dominant market positions, significant declines in its telecommunications revenue, or a significant increase or acceleration of its investment in the HSBB (high speed broadband) project,” the rating house said.
Moody’s added such risks would be measured by adjusted retained cash flow (RCF)-to-debt falling below 25% to 30%, or adjusted debt-to-EBITDA remaining above 2.5 times on a consistent basis.
TM (fundamental: 1; valuation: 1.1) is the largest fixed line and broadband telecommunications operator in Malaysia. As at Dec 30, 2014, TM holds some 98% of the fixed line market and 92% of the fixed broadband market by customers.
It is 56.4% owned by parties affiliated with the Malaysian government.
(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)