Singapore markets opened marginally higher, but underlying sentiment remains cautious as Middle East tensions threaten economic growth and inflation stability . Market Holds Steady Despite Rising Risks The FTSE Singapore Straits Times Index edged up 0.05% to 4,899.83 , reflecting a balanced market tone : Advancers: 57 | Decliners: 47 Trading activity remained relatively muted This suggests investors are waiting for clearer macro signals amid global uncertainty. Global Headwinds: Oil and Tech Weigh on US Markets On Wall Street, markets were mixed: Nasdaq Composite Index fell 0.7% S&P 500 Index declined 0.4% Dow Jones Industrial Average rose 0.1% Losses in technology stocks and rising oil prices offset relatively dovish comments from Jerome Powell , who signalled no immediate need for rate hikes. Singapore Growth Outlook Faces Downside Risks RHB flagged rising downside risks to ...
Strengthens net gearing marginally nonetheless
The MYR2.2b Perpetual Sukuk will lower Sime’s proforma net gearing to 49% (from 51%, as at 31 Dec 2015) which fits well with its ongoing deleveraging initiatives. Given the higher cost of Sukuk at 5.65% pa vs existing weighted cost of debt of 3.4% pa, we expect marginal EPS dilutions. With no immediate catalyst in sight (except an El Nino induced CPO price rally), we keep Sime as a HOLD with an unchanged TP of MYR7.98 based on 18x FY17 PER peg.
Raised MYR2.2b Perpetual Sukuk at 5.65% yield
Sime has completed the first fund raising exercise under its Perpetual Subordinated Sukuk programme on 24 Mar 2016. The MYR2.2b Perpetual Non-call 10-year Subordinated Sukuk which offered a yield of 5.65% pa was over 1.8x oversubscribed. Said to be the largest perpetual Sukuk issuance globally by a non-bank, the MYR3b Sukuk programme has been assigned a rating of AA by MARC.
Marginal EPS dilution
Sime plans to use the cash proceeds largely to refinance its debt obligations. According to its annual report, Sime has a total of MYR8.2b debt (inclusive of MYR3.2b in revolving credit and trade facilities) due for repayment in FY16-17. Its weighted average cost of debt was 3.4% p.a in FY6/15. By our estimate, the Sukuk will result in lower share of profits to equity shareholders by MYR37m p.a, which will dilute our FY16/FY17/FY18 EPS forecasts by 0.5%/1.3%/1.2%.
Expect more deleveraging exercises
MARC has accorded a 50% equity credit on the Sukuk issuance. With this, Sime’s proforma net gearing will improve slightly to 49% (from 51%, as at 31 Dec 2015), which is still above its ideal target of 30-40%. In the meantime, Sime is also considering monetising some of its assets in Singapore and Australia before end-FY16 to raise MYR1.5b in cash. We are keeping our EPS forecasts unchanged for now. Sime is a HOLD.
Source: Maybank Research, 25 March 2016
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