RAM Ratings opines that IJM Corporation's (IJM Corp or the Group) recently announced proposed acquisition of the highway concessionaire, Sistem Lingkaran-Kajang Sdn Bhd (SILK) for MYR 398 million and the privatisation of the Group's property arm - IJM Land Berhad (IJM Land) - for MYR 1.98 billion have no immediate impact on the AA3/Stable rating of the Group's Sukuk Murabahah Programme.
IJM Corp's financial and liquidity positions are expected to remain intact after the consolidation of SILK and the privatisation of IJM Land. The Group's gearing ratio is projected to edge up to 0.77 times (end-March 2014: 0.63 times) while its funds from operations debt cover may decline from 0.19 to 0.16 times. IJM Corp's AA3/Stable rating is anchored by its tangible market positions within its diversified core businesses, good earnings visibility amid the bright prospects for its construction order book and strong unbilled property sales, adequate debt-servicing ability and substantial financial flexibility.
The acquisition of SILK will add to the Group's expanding portfolio of highway concession assets, which currently include the NPE (20 km), Besraya (29 km), LEKAS (44 km) and the impending WCE (233 km). The proposed acquisition – which will likely be partially debt-funded – will form part of IJM Corp's portfolio of infrastructure concessions that may be monetised via a future share floatation. While SILK has been incurring losses, its positive operating cashflow has allowed it to be self-sustaining in terms of servicing the minimum profit and principal obligations under its existing MYR 863.56 million Sukuk Mudharabah.
Meanwhile, the IJM Land privatisation is expected to be largely funded via a share swap (MYR 1.87 billion), with a minimal cash outlay of MYR 111.75 million. Given its land bank of close to 5,900 acres (with a gross development value of around MYR 39 billion), IJM Land has emerged as the Group's crown jewel, accounting for 53 per cent of IJM Corp's pre-tax profit in fiscal 2014. IJM Land will become a wholly owned subsidiary (as opposed to the current 64.15 per cent) of the Group after the privatisation exercise.