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RAM Ratings reaffirms Binariang GSM's Sukuk ratings; outlook remains negative.

RAM Ratings has reaffirmed the respective 3/P1 and A2 ratings of Binariang GSM Sdn Bhd's (BGSM) Senior Sukuk and Junior Sukuk. The ratings agency has maintained the negative outlook on both long-term ratings.

The Senior Sukuk consists of BGSM's MYR 19 billion Islamic Medium-Term Notes Programme and MYR 2 billion Islamic Commercial Papers Programme. The Junior Sukuk refers to the Group's $900 million Cumulative Non-Convertible Islamic Junior Sukuk. BGSM is the investment-holding company with interest in Malaysia's largest cellular operator, Maxis Berhad (Maxis), and Aircel Limited (Aircel) - the seventh-largest mobile operator in India and PT AXIS Telekom Indonesia - the fifth largest mobile operator in Indonesia.

RAM Ratings said, "The rating reaffirmation has given significant consideration to a proposed corporate restructuring exercise that aims to bring BGSM's Sukuk holders a step closer to Maxis' cashflow for debt servicing and also to enhance its debt-protection covenants. BGSM targets to complete the restructuring exercise by June 2013. Subject to all the relevant approvals, this proposed exercise includes the following:

(i) Establishment of a special-purpose vehicle (SPV) that will own the shares in Maxis currently owned by BGSM Group; and (ii) Exchange of BGSM's Islamic Securities with the new Senior and Junior Sukuk to be issued by the SPV. "The negative outlook reflects our continuing concerns on further deterioration of the Group's financial metrics, exacerbated by Aircel's persistently weak performance. On this account, Aircel continued to report pre-tax losses amid an extremely competitive operating landscape and the unrelenting regulatory uncertainties in India. Aircel's performance has significantly affected the Group's financial profile; BGSM registered a pre-tax loss for the first time in fiscal 2011 and remained so in 1H FY Dec 2012. This is expected to continue, thereby affecting the Group's near-term profitability and debt-protection measures. It is therefore imperative that BGSM's corporate restructuring be completed according to schedule and without deviation from the represented framework to address these concerns. The ratings will come under severe downward pressure if the details and timing of the corporate restructuring are not adhered to, and there is no significant improvement in the Group's financial profile.

"Meanwhile, the ratings continue to be supported by Maxis' position as the largest mobile-services provider in Malaysia. The steady profit performance and cash-generating aptitude of its Malaysian operations, with an annual operating cashflow of exceeding MYR 3 billion, offer some degree of earnings stability to the Group, thereby moderating the losses of its Indian operations. Going forward, dividend income from Maxis is expected to anchor the Group's debt-servicing ability."

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Publication:CPI Financial
Date:Feb 16, 2013
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