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Press Release
13 Aug | Wednesday
RAM Ratings reaffirms AA3/P1 ratings of Gamuda’s Islamic securities

RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of Gamuda Berhad’s (Gamuda or the Group) Islamic Debt Programmes. The reaffirmation of the ratings is premised on the Group’s well-established position within the local construction sector, particularly in respect of rail-related and tunnelling projects. “Backed by 2 decades of track record in large-scale civil engineering works, we believe Gamuda will continue to be a strong contender for complex large-scale projects. As such, we expect its order book to be substantially replenished, given the Group’s credentials for upcoming infrastructure projects,” said Thong Mun Wai, RAM’s Head of Agribusiness, Real Estate and Construction Ratings. Gamuda is also a prominent player in the domestic property sector, with several mature townships under its belt.

The ratings are also supported by Gamuda’s diversified business profile. While construction is the Group’s biggest topline generator, each of the 3 business divisions contributes a third of its pre-tax profit. In particular, the Group’s concession assets – mature toll roads and water concessions – serve as a buffer against the cyclicality of the construction and property sectors. Nonetheless, the sale of the Group’s stake in Syarikat Pengeluar Air Selangor Holdings Berhad (SPLASH) to Kumpulan Darul Ehsan Berhad (KDEB) remains protracted. Under KDEB’s offer dated 26 February 2014, Gamuda could incur divestment losses of about RM920 million – an offer the Group had rejected in March 2014.

Meanwhile, Gamuda’s balance sheet has stayed healthy. Despite borrowings increasing to RM2.82 billion (before the adoption of FRS 11) as at end-April 2014, its gearing came in at a healthy 0.50 times. Further, the Group’s annualised funds from operations (FFO) debt coverage improved to 0.25 times for 9M FY July 2014. As the Group maintains substantial cash reserves, its net gearing and FFO debt coverage net of cash and liquid investments were at 0.19 and 0.68 times as at end-April 2014 and for 9M FY July 2014, respectively. Moving forward, given the funding requirements of its property and construction operations (including its recent purchase of about 1,500 acres of land in the southern region of Selangor), Gamuda’s debt load is expected to increase substantially over the next 3 years. However, its balance sheet is envisaged to remain healthy with gearing of about 0.6 times and adequate FFO debt coverage of between 0.15 and 0.18 times (before taking into consideration the effects from the sale of SPLASH).

Gamuda’s ratings are moderated by significant concentration and execution risks relating to its projects. The Group’s outstanding construction order book is largely driven by a single large local project, while the complexity of work involved gives rise to considerable execution risk. Gamuda’s role as project delivery partner for the Klang Valley Mass Rapid Transit project’s Sungai Buloh-Kajang line is aimed at ensuring that the project is completed within a strict timeline and budget. Among other challenges, the Group is required to manage numerous contractors involved in the project, the scale of which is unprecedented. Elsewhere, Gamuda is also exposed to the cyclicality of the construction and property sectors and the risk of regulatory changes in relation to its concession assets.

Gamuda’s Islamic Debt Programmes consist of its RM800 million IMTN Programme (2008/2028) and RM100 million ICP Programme (2008/2015), as well as its RM800 million IMTN Programme (2013/2038) and RM100 million ICP Programme (2013/2020).

Media contact:
Ben Inn
(603) 7628 1024
ben@ram.com.my

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