Tuesday, Mar 18, 2003
MARC has upgraded the rating for Tranche I of Perak-Hanjoong Simen Sdn Bhd’s (PHSSB) RM698 million Al-Bai’ Bithaman Ajil Secured Serial Bonds Facility (ABBA) from AA+ID(bg) (Triple A, Islamic Debt, bank guaranteed) to AAAID(bg) reflecting the strength of the irrevocable unconditional guarantee provided by the said tranche’s bank guarantor. At the same time, the ratings for tranches II, III and IV have been affirmed at AID(bg), A+ID(bg) and A+ID(bg) respectively reflecting the strength of irrevocable unconditional guarantees provided by a consortium of banks evaluated using the weak link approach. The ‘BBB-ID‘ rating affirmation of the non-guaranteed Tranche V reflects the issuer’s stand-alone rating, recognising PHSSB’s vulnerability to industry and economic cycles and MARC’s expectation of stiffer competition from foreign producers with the advent of AFTA in 2003. Positive rating factors include PHSSB’s position as one of the larger integrated cement producers in the domestic cement industry and the revival of infrastructure projects that were shelved during the economic crisis period.
With the implementation of AFTA in January 2003, domestic cement producers will face intense competition from foreign producers especially multinational companies like CEMEX of Mexico and HeidelbergCement of Germany which have the reserve and capacity to provide cheaper cement. Export opportunity is viewed to be limited as local producers would face competition from producers in neighbouring countries like Indonesia, the world’s largest cement exporter, and Thailand.
Growth of the cement industry is very much dependent on the level of construction activities. In 2001, the cement industry benefited from the revival of several infrastructure projects and the recovery of the construction activities backed by two major fiscal stimuli spending by the government totalling RM7.3 billion. Strong demand for residential units also contributed towards the growth of the construction industry.
The domestic cement industry in 2002 is dominated by the Malayan Cement Group which commands over 50% of the cement market, both in terms of production capacity and market share of cement sales. PHSSB was ranked third with a 13.3% market share of the nation’s cement sales, but was the second largest in terms of total production capacity with production capacities of 3.4 million per annum for cement and 3.0 million tonnes per annum for clinker.
For fiscal year 2001, PHSSB’s revenue improved by 16.1% to RM187.8 million on the back of strong construction activities and cessation of the rebate practice in 2000. Consequently, its profit before tax increased by 58.4% to RM16.3 million from RM10.3 million in FY2000. Operating margin remained at 10.0%; comparable to its peers.
During FY2001, PHSSB was able to meet its required interest and principal payments through its operating cash flows. Its cash flow interest coverage and debt service coverage ratio (DSCR) was 1.9 times and 1.8 times respectively. However, based on the revised projected cash flows, the cash flow interest coverage for FY2002 and FY2003 are expected to fall below 1.0 time. The shortfall in operating cash flow to service interest would be funded from its working capital facilities. From FY2004 onwards, the interest coverage ratio is projected to be above 2.0 times.
PHSSB’s capital structure is highly leveraged compared to the other cement producers. As at 31 December 2001, total borrowings stood at RM712 million, an increase of RM278 million from the previous year. The increase in total borrowings coupled with decrease of shareholders’ funds due to redemption of the Cumulative Redeemable Preference Shares increased the debt leverage ratio to 1.5 times from 0.8 times in FY2001.
With the implementation of AFTA in January 2003, domestic cement producers will face intense competition from foreign producers especially multinational companies like CEMEX of Mexico and HeidelbergCement of Germany which have the reserve and capacity to provide cheaper cement. Export opportunity is viewed to be limited as local producers would face competition from producers in neighbouring countries like Indonesia, the world’s largest cement exporter, and Thailand.
Growth of the cement industry is very much dependent on the level of construction activities. In 2001, the cement industry benefited from the revival of several infrastructure projects and the recovery of the construction activities backed by two major fiscal stimuli spending by the government totalling RM7.3 billion. Strong demand for residential units also contributed towards the growth of the construction industry.
The domestic cement industry in 2002 is dominated by the Malayan Cement Group which commands over 50% of the cement market, both in terms of production capacity and market share of cement sales. PHSSB was ranked third with a 13.3% market share of the nation’s cement sales, but was the second largest in terms of total production capacity with production capacities of 3.4 million per annum for cement and 3.0 million tonnes per annum for clinker.
For fiscal year 2001, PHSSB’s revenue improved by 16.1% to RM187.8 million on the back of strong construction activities and cessation of the rebate practice in 2000. Consequently, its profit before tax increased by 58.4% to RM16.3 million from RM10.3 million in FY2000. Operating margin remained at 10.0%; comparable to its peers.
During FY2001, PHSSB was able to meet its required interest and principal payments through its operating cash flows. Its cash flow interest coverage and debt service coverage ratio (DSCR) was 1.9 times and 1.8 times respectively. However, based on the revised projected cash flows, the cash flow interest coverage for FY2002 and FY2003 are expected to fall below 1.0 time. The shortfall in operating cash flow to service interest would be funded from its working capital facilities. From FY2004 onwards, the interest coverage ratio is projected to be above 2.0 times.
PHSSB’s capital structure is highly leveraged compared to the other cement producers. As at 31 December 2001, total borrowings stood at RM712 million, an increase of RM278 million from the previous year. The increase in total borrowings coupled with decrease of shareholders’ funds due to redemption of the Cumulative Redeemable Preference Shares increased the debt leverage ratio to 1.5 times from 0.8 times in FY2001.