DRB-Hicom to raise RM3.5b under sukuk

The diversified group is embarking on this financing exercise to take advantage of the current interest-rate environment to raise medium- to long-term financing


DRB-HICOM Bhd has proposed Islamic medium-term notes (sukuk wakalah) programme of up to RM3.5 billion in nominal value to fund its capital expenditure (capex) and working capital requirements.

In an exchange filing yesterday, the diversified group stated that it is embarking on this financing exercise to take advantage of the current interest-rate environment to raise medium- to long-term financing.

“Proceeds raised from the sukuk wakalah shall be utilised for the Shariah-compliant purposes including refinance the existing financing/borrowings of the group; finance the company’s capex and working capital requirements and/or investments, as well as for general corporate purposes,” DRB-Hicom noted.

The tenure of the programme shall be up to 30 years from the date of first issuance of the sukuk wakalah.

The sukuk wakalah programme has been assigned a preliminary rating of A+IS with a positive outlook by Malaysian Rating Corp Bhd (MARC).

“On balance, DRB-Hicom’s total borrowings would remain unchanged over the medium term, but its borrowings maturity profile would improve.

“The ratings affirmation mainly reflects DRB-Hicom’s strong market position in the domestic automotive industry, its moderately diversified business profile that includes concession-based operations and its earning generation capabilities,” MARC stated yesterday in a release.

The rating agency added that its outlook revision to positive considers DRB-Hicom’s improved consolidated credit profile through streamlining businesses by divesting investments and non-core assets and in improving operating margins, as well as strengthening liquidity position.

Should DRB-Hicom continue to improve its performance such that its operating Ebitda interest cover is able to sustain above three times, while leverage position as reflected by adjusted gross debt-to-equity is about 0.7 time, the rating agency could upgrade the ratings by mid-2020.

MARC added that if the group’s financial performance reverses its uptrend and/or any sizeable debt-funded acquisition is undertaken, resulting in weakening debt metrics, the outlook could be revised to stable.

In addition, MARC expects DRB-Hicom’s major subsidiary Proton Holdings Bhd to sustain the improvement in its financial performance over the medium term as sales are expected to be further supported by the facelifted Saga, Iriz, Exora and Persona models, although the competitive pressures in the domestic automotive industry could limit any significant upside on sales volume.

Sales for the nine months of the year have surged 42% to 70,330 units and has surpassed sales of 64,744 units recorded for the whole of last year.

DRB-Hicom closed one sen or 0.4% higher to RM2.48 yesterday, giving it a RM4.79 billion market capitalisation.