SUNWAY TREASURY SUKUK SDN BHD - 2019

MARC has assigned ratings of MARC-1_IS(cg)/AA-_IS(cg) to Sunway Treasury Sukuk Sdn Bhd’s (STSSB) RM10.0 billion Sukuk Programme with a stable outlook. STSSB’s Sukuk Programme will carry an Al-Khafalah guarantee from Sunway Berhad (Sunway).

The new Sukuk Programme is expected to replace STSSB’s existing RM2.0 billion Sukuk Programme which MARC had affirmed at MARC-1_IS(cg)/AA-_IS(cg) on November 21, 2018. The existing Sukuk programme will be cancelled. MARC highlights that despite the sizeable headroom afforded under the new Sukuk Programme to potentially increase the issuance amount, the assigned ratings on the new Sukuk Programme are premised, among other things, on expectations that Sunway Group borrowings will remain at about RM11 billion over the next two years. As at end 9M2018, Sunway Group’s total borrowings stood at about RM9.0 billion.

The ratings assigned to STSSB’s new Sukuk Programme reflect Sunway Group’s credit strengths which are underpinned by well-established businesses and strong market positions in property, construction, healthcare and leisure-related operations. Its sizeable and diversified business operations have engendered steady cash flow generating ability. Moderating these strengths are concerns on the potential impact on the group from the lingering weakness in the domestic property industry and reduced government-related infrastructure contracts in the construction industry. Adding to these concerns are the group’s increased leverage position, although its net-debt-to-equity (DE) ratio remains at a moderate 0.42x as at end-9M2018, and reduced interest coverage due to higher borrowings. Sunway also has a RM2.0 billion Commercial Papers/Medium-Term Notes (CP/MTN) programme, the ratings of which MARC affirmed at MARC-1/AA- with a stable outlook on November 21, 2018. (The full rating report on Sunway can be accessed at www.marc.com.my.)

Major Rating Factors

Strengths

• Strong and long-standing record in property and construction businesses; and
• Steady income stream from property investments and other segments.

Challenges/Risks

• Challenging outlook for domestic property sector;
• Potential reduction in government-related infrastructure projects; and
• Increasing borrowings trend to meet capex requirements.