Posted Date: October 8, 2020

MARC is issuing this update on the potential rating impact on UEM Sunrise Berhad in light of the proposed merger with Eco World Development Group Berhad (Eco World). UEM Sunrise currently carries MARC-1IS / AA-IS ratings with a stable outlook from MARC for the property developer's two Islamic Commercial Papers / Islamic Medium-Term Notes Programmes of RM2.0 billion each.

Under the proposed merger, UEM Group Berhad, the parent of UEM Sunrise, will undertake a share exchange exercise that will result in UEM Sunrise holding a 100% stake in Eco World. In turn, UEM Sunrise will issue new shares to the shareholders of Eco World, which will dilute UEM Group's stake in the property developer to 43% from 66%, although it would remain the single largest shareholder of the enlarged entity.

UEM Sunrise's current long-term rating of AA- incorporates a one-notch uplift from its standalone rating. The rating uplift assumes that UEM Sunrise as a subsidiary of UEM Group would benefit from parental support. The dilution of UEM Group's shareholding in UEM Sunrise to an associate status may affect the parental support assumption on which the rating uplift was based on.

MARC notes a potential weakening in the credit profile of the enlarged UEM Sunrise group. Based on the merger proposal, our preliminary calculations indicate that its leverage position as reflected by the debt-to-equity (DE) ratio could elevate to about 0.90x from a moderate 0.56x as at end-June 2020.

The aforementioned factors, along with business and financial assessments of the merged entity, will be the key drivers of MARC's rating action on UEM Sunrise. The rating agency will monitor the developments on the proposed merger and will only make an appropriate rating decision only upon conclusion of the exercise.

Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my
Rajan Paramesran, +603-2717 2933/ rajan@marc.com.my

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