(Text released by the ratings agency)
KUALA LUMPUR, June 19 Malaysian Rating Corporation Berhad (MARC) said today that Berjaya Sports Toto Berhad's (BToto) proposal to transfer BToto's 100 percent-equity interest in Sports Toto Malaysia Sdn Bhd (Sports Toto) to a business trust in Singapore will have no immediate impact on Sports Toto's current rating of AA-/stable on its 800 million ringgit Medium Term Notes (MTN) programme. As of June 18, 2012, the outstanding amount under the MTN programme is 550 million ringgit.
Under the proposal, BToto will receive as sales consideration 6 billion ringgit (SGD2.43 billion) for the divestment to the yet-to-be constituted and registered trust to be known as Sports Toto Malaysia Trust (STM-Trust). The consideration will be satisfied by 4.43 billion STM-Trust units at an issue price of SGD0.50 (about 1.24 ringgit) per unit and balance by way of a promissory note in favour of BToto which will be endorsed to Sports Toto. The amount on the promissory note will reflect the intercompany borrowings between BToto and Sports Toto at the anticipated completion date.
MARC understands that subsequent to the transfer, a public issue of up to 460 million STM-Trust units and an offer for sale of up to 540 million STM-Trust units will be carried out. MARC has been informed that the bulk of the proceeds from the public issue of about 568 million ringgit will fund the repayment on the promissory note which will be earmarked to meet the repayment of the outstanding MTN when due. The first repayment of 150.0 million ringgit is due in June 2013.
While the change in ownership is expected to have a neutral impact on Sports Toto's prospective performance, the credit impact of any changes to operating strategy, credit metrics and/or financial policies on Sports Toto's creditworthiness should be negated by BToto's proposed repayment of amounts outstanding under the rated programme with proceeds from STM-Trust's public issue.
The rating agency notes that BToto's proposal is in the early stages and the company would need to seek approval from various authorities as well as the MTN noteholders for waivers on conditions stipulated under the MTN programme. However, MARC notes the potential for some execution risk with regard to the announced corporate exercises and is of the view that the recent developments introduce some element of uncertainty into the programme rating. MARC will continue to monitor the situation and will take appropriate action if warranted.