Monday, Jan 15, 2001
Malaysian Rating Corporation Berhad (MARC) has assigned a short term debt rating of MARC-2 to DRB-HICOM Berhad’s (DRB-H) RM380 million Fixed Rate Notes Issuance Facility.
The assigned rating reflects the strength of the issue structure that has earmarked the proceeds of RM470 million from the sale of DRB-HICOM’s (DRB-H) interest in Credit Corporation (Malaysia) Bhd to Hong Leong Bank Berhad, for the purpose of repayment of the fixed rate notes. The main underwriter to the sale & purchase transaction, Hong Leong Credit Bhd., bears an investment grade rating with adequate capacity to fulfil its obligations under the underwriting agreement. DRB-H’s rating is, however, moderated by the group’s highly leveraged capital structure that has weakened its financial position.
DRB-H is a diversified conglomerate with interests ranging from assembly, manufacturing and distribution of motor vehicles, property development & construction and service based industries (such as public transportation, airline services, insurance and waste management).
Under the Sale & Purchase Agreement in respect of the sale of shares in CCM, Hong Leong Bank Berhad will issue new shares as purchase consideration, that will then be sold to the underwriting group comprising Hong Leong Credit Bhd (55%) and HLG Securities Sdn Bhd (5%). The remaining 40% will be sold to Koperasi Polis DiRaja Malaysia Berhad under a put & call option agreement. The cash proceeds will be transferred immediately to a sinking fund account to be utilized solely for the repayment of the fixed rate notes. MARC believes that the risk of non-completion of this transaction is minimal, with CCM being identified as one of the parties to be merged into an entity led by Hong Leong Bank Berhad. In respect of counterparty risk, Hong Leong Credit Bhd has been assigned a corporate debt rating of BBB+ from MARC. And with RM800 million in unutilized credit facilities, the investment holding company would appear to have the capacity to fulfil its obligations under the underwriting agreement.
DRB-H posted a 57% increase in revenue to RM2.61 billion in FY2000, boosted by the 82% increase in contribution from its automotive operations. Despite the significant increase in revenue, DRB-H’s pre-tax loss rose to RM293 million from RM183.6 million in FY99, due largely to the provision of RM397 million made for diminution in value of quoted investments by associated companies. Two consecutive years of losses had eroded the shareholders’ funds to RM107.45 million (FY98: RM734.56 mil); contributing to the deterioration in debt leverage from 0.81 x in FY98 to 2.21 x in FY2000. Following the completion of the restructuring exercise, the group’s borrowings will be trimmed from RM5.38 billion to RM3.49 billion, which is expected to provide savings of RM83 million in interest costs. The pro-forma debt leverage, based upon an enlarged share capital of RM900.3 million, is expected to improve to around 1.40 x. Cash flow protection measures will also improve with the benefit of the sale proceeds of Proton and CCM.
The assigned rating reflects the strength of the issue structure that has earmarked the proceeds of RM470 million from the sale of DRB-HICOM’s (DRB-H) interest in Credit Corporation (Malaysia) Bhd to Hong Leong Bank Berhad, for the purpose of repayment of the fixed rate notes. The main underwriter to the sale & purchase transaction, Hong Leong Credit Bhd., bears an investment grade rating with adequate capacity to fulfil its obligations under the underwriting agreement. DRB-H’s rating is, however, moderated by the group’s highly leveraged capital structure that has weakened its financial position.
DRB-H is a diversified conglomerate with interests ranging from assembly, manufacturing and distribution of motor vehicles, property development & construction and service based industries (such as public transportation, airline services, insurance and waste management).
Under the Sale & Purchase Agreement in respect of the sale of shares in CCM, Hong Leong Bank Berhad will issue new shares as purchase consideration, that will then be sold to the underwriting group comprising Hong Leong Credit Bhd (55%) and HLG Securities Sdn Bhd (5%). The remaining 40% will be sold to Koperasi Polis DiRaja Malaysia Berhad under a put & call option agreement. The cash proceeds will be transferred immediately to a sinking fund account to be utilized solely for the repayment of the fixed rate notes. MARC believes that the risk of non-completion of this transaction is minimal, with CCM being identified as one of the parties to be merged into an entity led by Hong Leong Bank Berhad. In respect of counterparty risk, Hong Leong Credit Bhd has been assigned a corporate debt rating of BBB+ from MARC. And with RM800 million in unutilized credit facilities, the investment holding company would appear to have the capacity to fulfil its obligations under the underwriting agreement.
DRB-H posted a 57% increase in revenue to RM2.61 billion in FY2000, boosted by the 82% increase in contribution from its automotive operations. Despite the significant increase in revenue, DRB-H’s pre-tax loss rose to RM293 million from RM183.6 million in FY99, due largely to the provision of RM397 million made for diminution in value of quoted investments by associated companies. Two consecutive years of losses had eroded the shareholders’ funds to RM107.45 million (FY98: RM734.56 mil); contributing to the deterioration in debt leverage from 0.81 x in FY98 to 2.21 x in FY2000. Following the completion of the restructuring exercise, the group’s borrowings will be trimmed from RM5.38 billion to RM3.49 billion, which is expected to provide savings of RM83 million in interest costs. The pro-forma debt leverage, based upon an enlarged share capital of RM900.3 million, is expected to improve to around 1.40 x. Cash flow protection measures will also improve with the benefit of the sale proceeds of Proton and CCM.