Wednesday, Apr 07, 2004
MARC has assigned the ratings of AID(bg) To Negeri Sembilan Cement Industries Sdn Bhd’s RM200.0 million Bai’ Bithaman Ajil Islamic Bonds (BaIDS) and MARC-2/BBB+ID to its RM130.0 million Murabahah Notes Issuance Facility (MUNIF). The rating assigned to the proposed BaIDS is reflective of the strength of irrevocable unconditional guarantees provided by a consortium of banks evaluated using the weak link approach. The rating assigned to the proposed MUNIF, on the other hand, is the issuer’s stand-alone rating, which recognizes NSCI’s vulnerability to the industry and economic cycles. Positive rating factors include NSCI’s position as one of the larger integrated cement producers in the domestic cement industry and its competitive cost structure.
A wholly owned subsidiary of Cement Industries of Malaysia Berhad (CIMA), NSCI is the third largest integrated cement producer in the country, behind Lafarge Malayan Cement Berhad and Perak-Hanjoong Simen Sdn Bhd. The ranking is based upon its cement and clinker production capacity of 3.4 million tonnes (m.t.) and 2.8 m.t. per annum respectively. Operating out of two plants each located in Negeri Sembilan and Perlis (where there are two production lines), NSCI has demonstrated year-on-year growth of its cement and clinker production since the 1997 economic crisis. Going forward, NSCI plans to run the Negeri Sembilan Plant and the first line of the Perlis Plant at optimum capacity, whereas the second line of the Perlis Plant shall provide the flexibility for NSCI to increase its production volume when the demand for cement and clinker increases.
The growth of the cement industry is dependent on the level of construction activities. In the near term, higher demand for cement is expected, in tandem with the construction sector’s growth. Although the demand for cement would be comfortably met by the industry’s installed capacity, future cement prices may still be subject to downward pressures from the overcapacity situation. Nevertheless, for the near to medium term, MARC expects the price level to be stable given the cement consumption level is back to pre-crisis level and the surplus in capacity is further reduced as the Malaysian economy continues to improve.
For FY2001 and FY2002, NSCI recorded an average operating profit margin of 19.9%, which is much higher compared to its peers. Going forward, NSCI is forecasting an average operating margin of 14.1% over the tenure of the Islamic debt facilities. NSCI is also projecting strong cash flows for the tenure of the facilities with an average FSCR of 5.2 times and MARC’s sensitivity analysis revealed that NSCI’s cash flow projection is resilient to reduction in cash receipts.
NSCI’s gearing level improved to 1.2 times in FY2002 from 2.1 times previously as a total of RM166.6 million debt was repaid by the holding company. Following the transfer of the Perlis Plant from CIMA to NSCI, NSCI’s shareholders’ funds are expected to increase to RM553.5 million by FY2003. Hence, the pro-forma debt-to-equity ratio after the issuance of the RM330 million Islamic debt facilities is only 0.6 times. MARC expects the gearing level to be comfortably below the covenanted level of 0.8 times as both the BaIDS and MUNIF will be progressively amortized.
A wholly owned subsidiary of Cement Industries of Malaysia Berhad (CIMA), NSCI is the third largest integrated cement producer in the country, behind Lafarge Malayan Cement Berhad and Perak-Hanjoong Simen Sdn Bhd. The ranking is based upon its cement and clinker production capacity of 3.4 million tonnes (m.t.) and 2.8 m.t. per annum respectively. Operating out of two plants each located in Negeri Sembilan and Perlis (where there are two production lines), NSCI has demonstrated year-on-year growth of its cement and clinker production since the 1997 economic crisis. Going forward, NSCI plans to run the Negeri Sembilan Plant and the first line of the Perlis Plant at optimum capacity, whereas the second line of the Perlis Plant shall provide the flexibility for NSCI to increase its production volume when the demand for cement and clinker increases.
The growth of the cement industry is dependent on the level of construction activities. In the near term, higher demand for cement is expected, in tandem with the construction sector’s growth. Although the demand for cement would be comfortably met by the industry’s installed capacity, future cement prices may still be subject to downward pressures from the overcapacity situation. Nevertheless, for the near to medium term, MARC expects the price level to be stable given the cement consumption level is back to pre-crisis level and the surplus in capacity is further reduced as the Malaysian economy continues to improve.
For FY2001 and FY2002, NSCI recorded an average operating profit margin of 19.9%, which is much higher compared to its peers. Going forward, NSCI is forecasting an average operating margin of 14.1% over the tenure of the Islamic debt facilities. NSCI is also projecting strong cash flows for the tenure of the facilities with an average FSCR of 5.2 times and MARC’s sensitivity analysis revealed that NSCI’s cash flow projection is resilient to reduction in cash receipts.
NSCI’s gearing level improved to 1.2 times in FY2002 from 2.1 times previously as a total of RM166.6 million debt was repaid by the holding company. Following the transfer of the Perlis Plant from CIMA to NSCI, NSCI’s shareholders’ funds are expected to increase to RM553.5 million by FY2003. Hence, the pro-forma debt-to-equity ratio after the issuance of the RM330 million Islamic debt facilities is only 0.6 times. MARC expects the gearing level to be comfortably below the covenanted level of 0.8 times as both the BaIDS and MUNIF will be progressively amortized.