MARC affirms rating on IJM, revises outlook from stable to negative

KUALA LUMPUR: Malaysian Rating Corp (MARC) affirms AA- rating on IJM Corporation Bhd’s RM1b debt notes but revised its outlook to negative from stable on challenging core businesses.

The ratings agency said on Wednesday 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% of revenue and pre-tax profit for fiscal 2014.

It added that sharp decline in palm price from last year and the weak near-term outlook of the sector would drag the group’s plantation division’s earnings.

Asides from the palm oil sector, MARC noted that the slowdown in the property sector has seen demand moderating for several IJM’s property development projects. 

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

“Against this backdrop, MARC observes that group borrowings have steadily increased, standing at RM6.3 billion as at end-December 2014,” MARC said. 

At the holding company level, its borrowings stood at RM1.3bil as at end-Dec 2014.

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

The potential funding requirements for the group’s key infrastructure projects and capital expenditure, particularly for its Indonesian plantation segment, could add further pressure on its credit profile.

On the other hand, MARC observes that the group’s orderbook for construction division has improved to about RM7.2bil 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, the rating agency may revise the group's outlook to stable, if the group is able to show financial resilience in restoring cash flow 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.