[RAM] Cahya Mata Sarawak's proposed disposal of associates will have no rating impact

RAM Ratings does not expect the proposed disposal of Cahya Mata Sarawak Berhad’s (CMS or the Group) respective 25% equity stakes in associates, OM Materials (Sarawak) Sdn Bhd and OM Materials (Samalaju) Sdn Bhd (collectively, the OM associates), to have any impact on its ratings. CMS carries corporate credit ratings of AA3/Stable/P1 while its RM2 bil IMTN Programme (2017/2037) is rated AA3/Stable. Being the only cement manufacturer in Sarawak, the Group has a dominant market position in the industry and directly benefits from the State’s recovering construction activity. CMS’s ratings are also supported by its robust balance sheet.

Through its subsidiary, CMS made a binding offer to OM Materials (S) Pte Ltd on 2 May 2022 to dispose of the OM associates for cash consideration of USD120 mil (about RM520 mil). The OM associates are involved in the processing of ferroalloys and ores as well as project development and management. The offer is subject to the finalisation of a definitive agreement by 30 May 2022.

We view the planned disposal to be neutral from a business perspective, presenting CMS with an opportunity to divest a non-core business that is currently benefiting from strong commodity prices. The OM associates’ earnings are made volatile by severe commodity price fluctuations. The Group has recognised its share of losses since the commencement of the OM associates’ ferroalloys smelting operations in 2014. Only in FY Dec 2021, CMS posted positive contribution of about RM85 mil given strong prices and demand, a significant turnaround from its share of losses in the preceding year amounting to RM23.59 mil.

In the near term, the disposal is positive from a financial standpoint. Proceeds of the proposed disposal, upon completion, are likely to move CMS into a net cash position. As of end-December 2021, the Group reported total debts of RM925.37 mil and cash of RM700.40 mil. Over the longer term, any strengthening of CMS’s balance sheet would depend on the planned usage of the sale proceeds, among which may include investments to expand its core businesses, particularly the cement manufacturing segment. We also do not preclude investments in phosphate manufacturing and the oil and gas-related businesses that the Group is in the midst of acquiring from Scomi Energy Services Berhad. The impact on CMS’s business and financial profile will become clearer in the months ahead.

Analytical contacts
Ben Inn
(603) 3385 2510

Thong Mun Wai
(603) 3385 2522