Malaysian infra firms to maintain stronger credit profiles, says S&P

KUALA LUMPUR: S&P Global Ratings expects infrastructure majors in Singapore, Malaysia, Thailand and the Philippines to be on stronger footing versus their peers in India and Indonesia.

The ratings agency said on Wednesday the three nations would be able to maintain stronger credit profiles and lower leverage than their Indian and Indonesian counter parts.

“We believe infrastructure majors with ratios of  debt to earnings before interest, tax, depreciation and amortisation (EBITDA) above 5.5 times could face financial pressure. 

“So could companies using a higher proportion of debt (more than three times equity) to fund new investments,” said S&P Global Ratings analyst Abhishek Dangra.

In his report entitled: "Bridging infrastructure gaps in India and Asean could create credit divides,” he estimated leverage will rise for Indonesian infrastructure firms and fall for Indian companies, on average.

Capital-expenditure burdens will be a key driver of ratings on these South and Southeast Asian 
infrastructure-related companies amid substantial spending plans.

"We do not expect that credit profiles will deteriorate for companies operating in sectors with strong regulations, or those with financial cushions in balance sheets to withstand higher capital expenditure," he said. 

Dangra estimated revenue growth of 4%-6% on average and stable EBITDA margins would underpin operating cash flows for the 24 infrastructure-related companies which S&P rate in South and Southeast Asia.

However, regulations are uneven across industries and countries, leaving some sectors susceptible to negative surprises that could undermine cash flows. 

More highly leveraged companies will be more vulnerable to regulatory risks, not to mention other potential stresses, such as rising interest rates or lower-than-expected revenues. 

“We believe credit trends could diverge, given plans for substantial  investments in regional infrastructure in South and Southeast Asia.

“Countries in the region are investing heavily to improve the quality and scale of economic growth. Utilities are scaling up to plug power deficits and improve electrification in India and Indonesia,” he said. 

Developing South and Southeast Asian countries are expanding airports and ports, paving new roads, and building bridges to reduce congestion and improve logistics, while Singapore is investing to upgrade and modernise its key facilities. 

Much of the spending will be carried out by government-owned enterprises, some of which benefit from monopolistic positions or reliable regulatory frameworks. 

The region's power utilities will continue to lead capital expenditure, largely on the back of high investments in Indonesia and India. 

“In our opinion, regulatory frameworks will support returns for utilities in most South and Southeast Asian countries amid high capital spending. However, Indonesia and the Philippines 
face higher regulatory risks in this sector.

“Renewable energy is set for strong growth from a low base, but the financial positions of sector players will remain stretched amid aggressive capex and early-stage portfolios. We foresee strong demand supporting the transportation infrastructure sector, but a slower pickup in volume for ports. 

“In our view, the region's substantial investments in infrastructure will support growth and development in the region. Beyond regulatory risks, in the medium- to long-term infrastructure in the South and Southeast Asia also faces risks from disruption and technological advancements,” he said.
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