Professional Documents
Culture Documents
PP8713/10/2007
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor,
nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation
risk, currency risk or any other risk apart from credit risk.
Lead Arranger: an event. As such, the ratings of the Islamic securities reflect the credit strength
CIMB Investment Bank
Berhad
of Khazanah in its capacity as the Purchase Undertaking Obligor.
Trustee:
PB Trustee Services Berhad
Khazanah’s credit strength is supported by the following:
Transaction Summary
Figure 1: Transaction overview
Purchase
Portfolio Trustee
Undertaking
Khazanah PB Trustee
(Sukuk Trustee)
Sale Undertaking
Payment for
purchase of
portfolio 100%
units from Subsidiary
Khazanah
Issues Sukuk
Musharakah
1 special Specific
portfolio unit portfolio units
RACB Sukuk
(Wakeel) Musharakah
Proceeds from
Sukuk investors
1
Includes amounts owed to related companies
The investment portfolio will be represented by 1 special portfolio unit that is held
by Khazanah at all times, and specific portfolio units which will be sold to RACB
from time to time. Each portfolio unit will represent a proportionate undivided
interest in the Portfolio. The ratio of Khazanah’s and RACB’s holdings in the
portfolio units will represent their proportionate interests in the Musharakah at
portfolio level.
The Sukuk investors will, from time to time, subscribe to the Sukuk Musharakah
issued by RACB. In turn, the Company will use the proceeds to purchase specific
portfolio units, thereafter holding these in trust for the benefit of the Sukuk
investors. The Sukuk Musharakah will represent the Sukuk investors’ undivided
beneficial interests in the respective venture at the Sukuk investors’ level, to
purchase specific portfolio units through RACB. A new Musharakah contract at
the Sukuk investors’ level will be created for each Sukuk issuance. Each
Musharakah contract will be independent of the others, as the investors and the
proportions of their investments may differ.
Upon RACB’s purchase of the specific portfolio units, Khazanah will extend a
Purchase Undertaking to the Sukuk Trustee, to purchase the respective portfolio
units at the Exercise Price upon their respective maturity dates, or upon a
Dissolution Event for the relevant Sukuk Musharakah. The Exercise Price for
Sukuk Musharakah that yield no profit will be equivalent to the face value of the
Sukuk Musharakah. In the case of the IMTN, the Exercise Price payable by the
Obligor upon a Dissolution Event or Event of Default - as the case may be - will
be adjusted after taking into account the date of declaration of such an event.
The Exercise Price may be paid upon maturity, or at regular intervals as periodic
distributions (for profit-paying IMTN) in the form of partial payments of the
Exercise Price pursuant to each Purchase Undertaking. As a result of the
periodic distributions, the interests of the Sukuk investors in the Musharakah will
ultimately be reduced in proportion to the partial payments; Khazanah’s interests
in the Musharakah will increase by the same quantum.
Concurrent with the Purchase Undertaking, the Sukuk Trustee will extend a Sale
Undertaking to Khazanah to sell the portfolio units, together with any accrued
income generated from the portfolio units from the date of their purchase, to the
latter upon maturity or a Dissolution Event. In relation to this, the Sukuk investors
will waive their rights to receive any accrued income; there will therefore be no
distribution of income to the respective portfolio units. The Sukuk investors’
returns will thus be limited to the Exercise Price.
Under the transaction, the periodic distributions and capital returns are ultimately
serviced by Khazanah, by virtue of the Purchase Undertaking to acquire the
specific portfolio units from RACB at a pre-agreed price upon maturity or a
Dissolution Event, as well as the Obligor’s commitment to top up the shortfall in
the periodic returns should the returns from the underlying portfolio be less than
expected.
Since the last review in December 2008, another RM1 billion was issued on 16
September 2009; this instrument is due to mature on 16 September 2010
bringing the total amount outstanding under the Programme to RM8 billion.
Company Background
Khazanah was incorporated on 3 September 1993 under the Companies Act
1965, and commenced operations as the investment-holding arm of the
Government. Save for 1 share held by Pesuruhjaya Tanah Persekutuan (or the
Federal Land Commissioner), the entire equity of Khazanah is owned by MOF
Inc.
Since the appointment of Tan Sri Dato’ Azman Mokhtar as its managing director
in May 2004, Khazanah has been transformed from a passive investment-holding
company to one that is more dynamic and forward looking. The Company has
created a framework for its transformation, focusing on 4 strategic pillars: the
restructuring of “legacy investments”; the transformation of GLCs; the acquisition
of new investments; and the development of human capital. This reflects
Khazanah’s early steps in balancing its role to ensure the achievement of its
commercial objectives vis-à-vis maximising shareholder returns, and its crucial
position in assisting the Government achieve its socio-economic goals.
By end-2008, the majority of the GLCs in Khazanah’s stable had completed their
restructuring i.e. TM Berhad (“TM”), the UEM Group, Malaysia Airports Holdings
Berhad (“MAHB”), with most of its legacy investments also having found a more
stable footing. This has allowed Khazanah to refocus its efforts in line with
diversifying its investment base from a geographical and sectoral perspective.
Between 2006 and 2008, Khazanah had intensified its efforts vis-à-vis foreign
investments in the financial-services sector and environmental sciences, with its
interests extending to the Middle East and China.
RAM Ratings notes that local investments still dominate Khazanah’s investment
portfolio. As at end-June 2009, domestic investments accounted for about 90%
of Khazanah’s portfolio, with the majority of them being GLCs. The GLCT
programme, which is now about mid-way through its 10-year tenure (2005 to
2015), encompasses several strategic transactions, corporate restructurings,
regionalisation of investments and landmark financing transactions that were
concluded in 2008, i.e. the demerger of the TM Group, the restructuring of the
UEM Group and the divestment of several key associates such as Time dot Com
Berhad, Tradewinds Hotels and Resorts Sdn Bhd and DRB-Hicom Berhad.
Khazanah has also increased stakes in major foreign investments, e.g.
Singapore-based healthcare provider Parkway Holdings Ltd (“Parkway”) (up to
23.93%) and several ventures (worth up to USD215 million) into the Middle
Eastern financial-services markets.
2
Includes Khazanah’s direct and indirect interests via UEM.
Source: Khazanah
3
Net worth consists of RAV less total liabilities
4
Source: Khazanah Media Statement, 19 January 2009
5
Source: Khazanah Media Statement, 19 January 2009
6
Source: Sovereign Wealth Fund Institute, www.swfinstitute.org. The assets of the SWFs
incorporate official disclosure, fund creation, investment activity, capital injections and other
variables.
While revenue and earnings had waned in 2008, the key entities of the K9 had
achieved a greater part of their KPIs, as highlighted in Table 4 below. The K9
had been in a much better position to weather the crisis as a result of their more
robust balance sheets and stronger operating fundamentals given that the
strategies under the GLCT programme were already mid-way through their cycle
(2004 to 2014).
*UEM did not make any announcement for 2008 due to its de-listing exercise for restructuring
purposes. Neither did TM and Proton as a result of their respective demerger and restructuring
exercises.
7
Source: G-20 Annual Report, Bloomberg and PCG Analysis
RAM Ratings understands that IIB may also form joint ventures with strategic
partners - both local and foreign - to invest in various IM projects. As a catalytic
developer within IM, IIB’s immediate focus is the education and tourism-related
sectors that are consistent with investments that have poured in to date.
8
The Government has earmarked RM6.83 billion under the Ninth Malaysia Plan
(“9MP”, 2006-2010) to ensure the continuous development of IM. Between 2006
and 2008, RM40.3 billion of investments had been secured, representing 85.6%
9
of the 5-year target of RM47 billion under the 9MP . About RM4.7 billion has
been allocated for capital expenditure between 2009 and 2011. While there have
been reports that some investors have temporarily deferred their contributions
due to the global downturn, investments are expected to continue flowing in over
the medium term.
In the meantime, Khazanah will indirectly invest in IM projects via IIB, UEM Land
or its other GLCs, where appropriate. A portion of the RM10 billion allocated to
Khazanah under the second stimulus package will be pumped into IM, although
these projects will have long gestation periods.
8
Source: “Iskandar Malaysia” official website at www.iskandar.com.my, “Iskandar maintains
investment momentum despite slowdown”, dated 20 November 2008.
9
Source: Khazanah official website at www.khazanah.com.my, “Khazanah emphasizes crisis
preparedness measures and initiatives to catalyze economic growth”, media release dated 19
January 2009
10
Based on the financial performance of the company as shown on MAS official website, “5 years
financial performance”,
http://www.malaysiaairlines.com/my/en/corp/corp/relations/info/highlights/financial-highlights.aspx
11
Source IATA at official website at www.iata.org, “Deeper Losses Forecast - Falling Yields, Rising
Fuel Costs”, dated 15 September 2009
To date, some GLCs have reported promising results in 2009, after accounting for
the expected protracted slowdown:
• CIMB achieved a 14.5% net return on equity (“ROE”) exceeding its KPI target
of 12.5% for the first quarter of fiscal 2009.
• Axiata has announced that it will be able to meet the upper range of its KPI
targets. Its revenue for the first half of fiscal 2009 came in at RM 6.03 billion,
with RM 622 million of pre-tax profit.
12
Source: Invest Malaysia 2009 Keynote Address: “Graduating to a Higher Class – Catalyzing a New
Domestic Economy”, 1 July 2009
13
Includes amounts owed to related companies.
Management Assessment
Tan Sri Azman Mokhtar’s long-term strategy for Khazanah includes the
divestment or trimming of the Company’s stakes in GLCs. While a minimal equity
reduction in such entities is not unusual, we believe that Khazanah is unlikely to
substantially reduce its interests in industries deemed of national importance,
such as its holdings in TNB, TM and POS. Nonetheless, Khazanah has the
flexibility of decreasing its equity in these entities but still retain its dominant
interest at the holding-company level (e.g. Plus-UEM and MAS-PMB). For
instance, Khazanah still holds 67.7% of MAHB after the divestment of its 5%
stake in MAHB in September 2009.
The management has highlighted that despite the global downturn, Khazanah’s
investment parameters have not changed, except for its geographical focus. The
latter is aimed at boosting the domestic economy between 2009 and 2011. The
Company’s key investment parameters include the following:
Commencement of N/A
Business:
Operating Profit/(Loss) Before Depreciation, Interest & Tax 1,099.25 54.07 1,910.37 6,850.89 5,769.75
Depreciation & Amortisation (0.31) (2.04) (4.06) (5.71) (5.55)
Operating Profit/(Loss) Before Interest & Tax 1,098.94 52.03 1,906.30 6,845.18 5,764.20
Finance Costs (816.55) (822.83) (925.73) (1,081.10) (1,196.51)
Debt-Related Foreign Exchange Gain/(Loss) 0.04 (1.25) (5.39) 18.00 147.13
Operating Profit/(Loss) Before Tax 282.43 (772.06) 975.19 5,782.08 4,714.82
Allowance for Impairment Losses in Investments/Other Provisions 0.00 0.00 0.00 (965.29) (3,094.99)
Non-Recurring Items (0.17) (31.26) (31.98) (91.39) (65.94)
Share of Associated Companies'/Joint Ventures' Profits/(Losses) 0.00 0.00 0.00 0.00 0.00
Pre-Tax Profit/(Loss) 282.26 (803.32) 943.21 4,725.40 1,553.89
T axation (73.29) (125.84) (221.01) (194.21) (350.43)
Net Profit/(Loss) 208.97 (929.16) 722.20 4,531.20 1,203.46
Minority Interests 0.00 0.00 0.00 0.00 0.00
Dividends (30.00) (30.00) (30.00) (1,100.00) 0.00
Post-Distribution Profit/(Loss) 178.97 (959.16) 692.20 3,431.20 1,203.46
An Issue Rating for a partnership-based sukuk is RAM Ratings' current opinion on the creditworthiness of a particular
partnership-based sukuk. It reflects the overall capacity and willingness of an issuer to meet the payment of capital and
expected returns on a full and timely basis, taking into account the expressed terms and conditions of the investment
contract. RAM Ratings’ sukuk ratings are, however, not a measure of compliance with Shariah principles or the role,
formation, practices, legitimacy and soundness of the Shariah advisors’ recommendations and decisions.
Long-Term Ratings
AAA A sukuk rated AAA has superior safety for payment of capital and expected returns. This is the highest long-term
Issue Rating assigned by RAM Ratings to a partnership-based sukuk.
AA A sukuk rated AA has high safety for payment of capital and expected returns. The issuer is resilient against
adverse changes in circumstances, economic conditions and/or operating environments.
A A sukuk rated A has adequate safety for payment of capital and expected returns. The issuer is more susceptible to
adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated
categories.
BBB A sukuk rated BBB has moderate safety for payment of capital and expected returns. The issuer is more likely to be
weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in
higher-rated categories. This is the lowest investment-grade category.
BB A sukuk rated BB has low safety for payment of capital and expected returns. The issuer is highly vulnerable to
adverse changes in circumstances, economic conditions and/or operating environments.
B A sukuk rated B has very low safety for payment of capital and expected returns. The issuer has a limited ability to
withstand adverse changes in circumstances, economic conditions and/or operating environments.
C A sukuk rated C has a high likelihood of not meeting the payment of capital and expected returns. The issuer is
highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the
lack of which would likely result in it not fulfilling the terms of the investment contract.
D A sukuk rated D is either currently not meeting or will not meet the payment of capital and expected returns. The D
rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer
that could jeopardise the fulfilment of the investment contract's terms.
Short-Term Ratings
P1 A sukuk rated P1 has high safety for payment of capital and expected returns in the short term. This is the highest
short-term Issue Rating assigned by RAM Ratings a partnership-based sukuk.
P2 A sukuk rated P2 has adequate safety for payment of capital and expected returns in the short term. The issuer is
more susceptible to the effects of deteriorating circumstances than those in the highest-rated category.
P3 A sukuk rated P3 has moderate safety for payment of capital and expected returns in the short term. The issuer is
more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This
is the lowest investment-grade category.
NP A sukuk rated NP has doubtful safety for payment of capital and expected returns in the short term. The issuer faces
major uncertainties that could compromise its capacity for fulfiling the terms of the investment contract.
D A sukuk rated D is either currently not meeting or will not meet the payment of capital and expected returns. The D
rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer
that could jeopardise the fulfilment of the investment contract's terms.
For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that
the issue ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates
that the issue ranks at the lower end of its generic rating category. In addition, RAM Ratings applies the suffixes (bg) or (s) to ratings
which have been enhanced by a bank guarantee or other supports, respectively.
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