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YTL Power's RM2.5b WiMAX network plan unexpected

The Edge Malaysia, March 11, 2010

KUALA LUMPUR: RAM Ratings says YTL POWER INTERNATIONAL BHD []'s (YTLPI) move to roll out its RM2.5 billion worldwide interoperability for microwave access (WiMAX) network is quite unexpected.

The rating agency said on Thursday, March 11 this was not in line with its track record of investing in long-term concession assets with stable and sustainable cashflow.

"Although RAM Ratings is less sanguine about the group venturing into a non-concession-based business, we note that YTLPI’s power and water concession assets will remain its major cashflow contributors," it said.

YTLPI's subsidiaries are in power generation, water and sewerage services, electricity transmission and telecommunications.

The ratings agency said while the group will be viewed to have a more aggressive risk appetite if it deviates further from its strategy of only investing in concession-based utility and infrastructure assets, "we note that the management has been circumspect in its investment decisions and has demonstrated good acumen in business execution thus far".

RAM Ratings, meanwhile, reaffirmed the AA1 ratings of YTLPI’s RM2 billion commercial papers/medium-term notes programme (2007/2014) (CP/MTN) and RM2.2 billion serial redeemable bonds (2008/2013); long-term ratings have a stable outlook.

It also reaffirmed the P1 rating of the YTLPI’s CP/MTN. The ratings remain supported by the group’s robust business profile stemming from its regulated asset base, particularly its investments in power and water-sewerage services via its unit YTL Power Generation Sdn Bhd (YTLPG) in Malaysia, PowerSeraya Ltd (PowerSeraya) in Singapore and Wessex Water Ltd (WWL) in the United Kingdom (UK).

In this regard, WWL has maintained its position as one of the most efficient water and sewerage-services companies in the UK. At the power-generation end, YTLPG has been able to achieve an availability level of around 90% for the past six years; PowerSeraya exhibits a strong operating performance, underscored by its availability of about 88% as at end-March 2009.

"Nonetheless, the group’s capital structure remained constrained by its hefty debt burden of RM22.92 billion as at end-December 2009, with a corresponding net gearing ratio of 2.02 times. However, most of these debts are parked under core subsidiaries that generate stable cashflow," it said.

RAM Ratings said YTLPI had healthy debt-protection measures; its company-level adjusted operating cashflow debt coverage (OCFDC) ratio was 0.28 times as at end-June 2009.

Based on RAM Ratings’ cashflow analysis, YTLPI’s OCFDC ratio is projected to range around 0.17–0.25 times throughout the tenures of YTLPI’s debt issues.