MARC Ratings has assigned preliminary ratings of AA-IS(cg)/AIS(cg) to TG Treasury Berhad’s proposed RM3.0 billion Islamic Medium-Term Notes (IMTN)/ Perpetual Sukuk Programme. Concurrently, MARC Ratings has affirmed its rating of AIS(cg) on TG Excellence Berhad’s RM3.0 billion Perpetual Sukuk Wakalah Programme. The outlook on all ratings is stable.
TG Treasury and TG Excellence are wholly-owned funding vehicles of Top Glove Corporation Bhd which provides an irrevocable and unconditional guarantee on the programmes. Accordingly, the IMTN rating is equalised to Top Glove’s corporate credit rating of AA-. Proceeds under TG Treasury’s planned initial RM800 million IMTN issuance will be utilised to redeem TG Excellence’s outstanding RM1.18 billion Perpetual Sukuk on the first call date on February 27, 2025. The remainder will be redeemed through internal funds.
MARC Ratings assessed Top Glove’s corporate credit rating of AA- on March 6, 2024. The rating considers Top Glove’s market position as a key global glove manufacturer, lengthy operating track record and healthy liquidity position. Key moderating factors are the thin profit margins and suppressed selling prices due to supply-demand imbalance, although demand has improved in recent quarters.
Top Glove registered a turnaround in operating profit before interest, tax, depreciation, and amortisation (OPBITDA) to RM163.1 million for the financial year ended August 31, 2024 (FY2024) from negative RM150.7 million in the previous corresponding period. The improvement was on the back of a 19.4% y-o-y increase in glove sales volume to 26.5 billion pieces. Accordingly, OPBITDA margin recovered to 6.5% from negative 6.7%. MARC Ratings opines that the gradual easing of headwinds in the global glove industry, mainly from overcapacity, would lead to further recovery in sales volume. In addition, Malaysian glove sales volumes could improve from the US imposition of significantly higher tariffs on Chinese gloves effective January 2025.
As at end-FY2024, Top Glove’s total active capacity stood at 60.0 billion pieces p.a., with the utilisation rate increasing to around 44% from around 37%. As demand improves, Top Glove is expected to gradually reactivate its temporarily shut down lines in the medium term. For FY2024, revenue rose by 11.5% to RM2.5 billion, while operating loss narrowed to RM124.4 million from a loss of RM493.7 million.
Total borrowings (including perpetual sukuk) stood at RM1.6 billion, translating into adjusted debt-to-equity (DE) and net DE ratios of 0.34x and 0.12x. The group has healthy cash balances of RM1.0 billion, partly from proceeds from asset disposals amounting to around RM338 million. The liquidity is expected to support operational requirements and financial obligations. Liquidity would be enhanced through the potential disposal of land parcels in Selangor, worth RM257.5 million, over the near term. The rating agency also notes that the full exercise of proposed bonus warrants issuance would generate proceeds of around RM440 million over a five-year period.
The two-notch differential between the senior ratings of AA- and the Perpetual Sukuk ratings of A reflects the subordination of the latter’s obligations to Top Glove’s senior unsecured obligations in line with MARC Ratings’ methodology. TG Excellence’s Perpetual Sukuk Programme will be terminated upon redemption of the outstanding, expected by 1Q2025.