PETALING JAYA: The proposed merger of UEM Sunrise Bhd with Eco World Development Group Bhd (Eco World) could impact the credit profile of the enlarged UEM Sunrise group, Malaysian Rating Corp (MARC) says.
In a statement yesterday, MARC noted a potential weakening in the credit profile of the enlarged group.
“Based on the merger proposal, our preliminary calculations indicate that its leverage position as reflected by the debt-to-equity (DE) ratio could elevate to about 0.90 times from a moderate 0.56 times as at end-June 2020, ” it said.
UEM Sunrise currently carries MARC-1IS/ AA-IS ratings with a stable outlook from MARC for the property developer’s two Islamic commercial papers/ Islamic medium-term notes programmes of RM2bil each.
Under the proposed merger, UEM Group Bhd, the parent of UEM Sunrise, will undertake a share exchange exercise that will result in UEM Sunrise holding a 100% stake in Eco World.
In turn, UEM Sunrise will issue new shares to the shareholders of Eco World, which will dilute UEM Group’s stake in the property developer to 43% from 66%, although it would remain the single largest shareholder of the enlarged entity.
“UEM Sunrise’s current long-term rating of AA- incorporates a one-notch uplift from its standalone rating.
“The rating uplift assumes that UEM Sunrise, as a subsidiary of UEM Group, would benefit from parental support.
“The dilution of UEM Group’s shareholding in UEM Sunrise to an associate status may affect the assumption of parental support on which the rating uplift was based, ” it said.
MARC said a potential weakening in the credit profile of the enlarged UEM Sunrise group, along with business and financial assessments of the merged entity, will be the key drivers of MARC’s rating action on UEM Sunrise.
The rating agency said it would monitor the developments on the proposed merger and will only make an appropriate rating decision only upon conclusion of the exercise.
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