KUALA LUMPUR: Malaysian Rating Corporation Bhd (MARC) has affirmed its ratings of MARC-1/AA- and MARC-1IS(cg)/AA-IS(cg) on Sunway Bhd’s RM2 billion Commercial Papers/Medium-Term Notes (CP/MTN) programme and Sunway Treasury Sukuk Sdn Bhd’s (STSSB) RM2 billion Sukuk programme.
The affirmation is premised on Sunway Group’s expected total debt level of RM10 billion to RM11 billion in the next two years, MARC said in a statement.
However, the ratings outlook has been revised to stable from positive.
“The revision reflects the increasing headwinds the Sunway Group faces in the property and construction sectors given the continuing subdued performance of the domestic property market and downward revision in government-related infrastructure contracts.
Sunway Group’s increased borrowing levels have also added to the rating agency’s concerns, the ratings firm noted.
MARC also affirmed that the ratings are underpinned by Sunway Group’s well-established businesses in property development, property investment, construction, healthcare and leisure-related operations that provide diversified sources of revenue and earnings.
Sunway Group's strong market position in the property and construction sectors would enable the group to weather challenges in these sectors.
“The group also retains sizeable cash generating ability and a moderate financial structure,” it said.
MARC said these factors notwithstanding, the rating agnecy expects the group to adhere to tighter financial discipline, particularly on using debt to strengthen its market position or undertake opportunistic transactions.
“Sunway Group has since established sizeable programmes under which the group can substantially increase its borrowings,” it said.
In this regard, the rating agency understands that group borrowings are expected to increase to RM11 billion by end-2020, with first half (1H) 2018 standing at RM9 billion, to fund its working capital requirement and capex (capital expenditure).
MARC said Sunway Group’s gross and net debt-to-equity (DE) stood at about 1.04x and 0.44x at end-1H2018 (first half 2018) with net DE expected to increase to 0.48x by end-2018.
“However, any further rise in borrowings without concomitant measures to address debt metrics weakness could lead to downward rating pressure,” it said.