(IOICORP closing stock price yesterday (15.5.2012) was RM 5.01)
IOI Corp Bhd is in the process of raising funds via the establishment of a euro medium-term note (EMTN) programme with an initial programme size of US$1.5bil or RM4.62bil.
According to the company in its filing to Bursa Malaysia yesterday, it intends to use the net proceeds raised from each issue of notes under the EMTN programme to fund capital expenditure, investments, acquisitions, working capital and for repayment of its existing borrowings.
IOI Corp's wholly-owned subsidiary, IOI Investment (L) Bhd, has entered into documentation for the establishment of a EMTN programme.
“The EMTN programme provides IOI Investment a further avenue to tap into the liquidity of the international debt capital markets.
“The establishment of the EMTN programme will provide IOI Investment the flexibility to raise funds via the issuance of the notes from time to time with a tenor and in a currency to best match its requirements,” said IOI Corp.
Notes issued under the EMTN programme will be unconditionally and irrevocably guaranteed by IOI and may be listed on the Singapore Exchange Securities Trading Ltd (SGX-ST).
The approval in-principle for the listing and quotation of notes to be issued pursuant to the EMTN Programme has been obtained via SGX-ST.
The financial guarantee to be issued by IOI in connection with the proposed initial issuance under the EMTN programme has also been registered with Bank Negara via letters dated April 4 and 17, 2012.
The joint lead arrangers and dealers for the programme are The Hongkong and Shanghai Banking Corp Ltd, Mitsubishi UFJ Securities International plc, Citigroup Global Markets Ltd and Morgan Stanley & Co International plc.
This recent development confirmed a StarBiz report in February that speculated that the company, well-known for its palm oil plantation business, would raise more funds in the near future.
In the news report quoting a banker, IOI Corp was in a good position to do so considering its huge cash flow from its plantation business.
The funds raised should give IOI Corp sufficient funds to not only pay for the Singapore land acquisition but also ready funds in the event it chooses to buy more assets such as plantation land.
In January it acquired six acres of land in Singapore for RM995.5mil to build high-end condominums.
Nevertheless, Moody's Investors Service has assigned a (P) Baa1 rating to IOI Corp's new US$1.5bil EMTN programme with a negative outlook.
The provisional rating on the programme is the same as IOI Corp's issuer rating of Baa1 announced on May 11, that saw the change of outlook to negative from stable.
“There is no secured debt in IOI Corp capital structure, thus, there is no legal subordination risk,” said Moody's vice-president and senior credit officer Alan Greene.
IOI's rating reflected its leading position in the palm oil plantation and downstream sectors where the underlying demand for palm oil for human consumption or industrial uses continued to grow.
It has a track record of managing through cycles supported by its strong liquidity and access to banking markets.
Its diversification into property has complemented its land-management activities in Malaysia but its more recent and rapid expansion into property development in Singapore has required significant investment.
IOI's liquidity and debt maturity profile remain strong where the next large “on-balance sheet” debt repayment is the US$500mil 5.25% bonds due in 2015, while cash and near-cash were RM3.2bil as of Dec 31, 2011.
However, IOI's proportion of guaranteed debt in the Singapore property joint ventures of some S$847mil (RM2.1bil) was significant relative to IOI's gross debt of RM5.8bil as of Dec 31, 2011.
Since December 2011, IOI Corp has also paid S$408mil for a mid-market condominium land site in Singapore, although other maturing property project debt has been successfully rolled over.
“The programme will further improve IOI's liquidity and provide greater financial flexibility for its property activities in Singapore and Malaysia.
“The change of outlook to negative on May 11 incorporated Moody's expectation that IOI's property expansions will be partly funded through debt,” added Greene, also Moody's lead analyst for IOI.
IOI's ratings outlook is negative on the expectation that it will maintain a strongly liquid balance sheet after considering disbursements to support its plans for plantation expansion, property development, capital expenditure and significant returns to shareholders.
But, over the past five years, there has been a gradual deterioration in credit metrics such as debt/EBITDA and EBITDA/revenue which at end-December 2011 stood at 2.2 times and 13.9% respectively, and thus fall on or outside the parameters for a Baa1 rating.
On Monday, Standard & Poor's Ratings Services affirmed its BBB+ corporate credit rating on IOI Corp with a stable outlook.
Source: www.thestar.com.my
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