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Sports Toto ownership change: ‘No impact on AA- debt rating’

June 18, 2012

KUALA LUMPUR: Berjaya Sports Toto Bhd’s (Btoto) proposal to transfer its 100% equity interest in Sports Toto Malaysia Sdn Bhd to a business trust in Singapore, will have no immediate impact on the current rating of AA-/stable on the RM800 million Medium Term Notes (MTN) programme, says Malaysian Rating Corporation Bhd (MARC).
As of June 18, the outstanding amount under the MTN programme was RM550 million.

Under the proposal, BToto will receive as sales consideration RM6 billion  (S$2.43 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 S$0.50 (about RM1.24) 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 inter-company 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 said it has been informed that the bulk of the proceeds from the public issue of about RM568 million 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 RM150.0 million 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, it said.

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 exercise, 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 take appropriate action if warranted.



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