19 January 2015
affirms existing islamic debt and sukuk ratings

outlook stable

MARC has assigned a preliminary rating of AAAIS with a stable outlook to Putrajaya Holdings Sdn Bhd's (PJH) proposed RM370.0 million 15-year Sukuk Musharakah Programme. Concurrently, MARC has affirmed its existing debt ratings on PJH's outstanding issuances as follows:

  • RM3.0 billion Sukuk Musharakah Programme (due 2032) at AAAIS/stable;
  • RM1.5 billion Sukuk Musharakah Medium Term Notes (MTN) Programme (due 2033) at AAAIS/stable; and
  • RM2.2 billion Murabahah Medium Term Notes (MMTN) Programme (due 2021) at AAAID/stable.

The ratings incorporate PJH's healthy financial and business profile which is mainly derived from stable and sizeable rental income streams from subleasing government buildings in Putrajaya to the government. In addition, PJH's strong track record as the master developer of the federal government administrative capital in Putrajaya and the strength of its government-linked major shareholders namely KLCC Holdings Sdn Bhd and Khazanah Nasional Berhad support the ratings.

The proceeds from the proposed RM370.0 million Sukuk Musharakah Programme will be utilised to finance the construction of the Ministry of International Trade and Industry (MITI) building in Kuala Lumpur. PJH's wholly-owned subsidiary, Putrajaya Management Sdn Bhd is undertaking the construction of the 31-storey MITI building which has a gross built-up area of 911,151.1 sq ft. The construction is expected to be completed by end-September 2015 and tenanted by MITI for a period of 25 years under a Private Finance Initiative agreement which PJH had entered with the Federal Land Commissioner (FLC).

MARC notes that aside from the MMTN programme, sublease rentals have not been specifically assigned to meet the financial obligations under PJH's more recent programmes. Instead, rental streams from several identified government buildings have been earmarked to match the repayment profiles of the programmes. MARC has assessed the rental streams from the identified government buildings to be sufficient to meet the financial commitments under the programmes. For the RM370.0 million Sukuk Musharakah Programme, cumulative rental of RM514.5 million over the tenure of the programme has been earmarked from an identified government building. 

The MITI building is PJH's first project outside of Putrajaya. In addition, PJH has also expanded its scope to include more commercial and residential projects in its development pipeline in Putrajaya.  For 9M2014, PJH launched four projects with a total estimated gross development value (GDV) of about RM450.0 million in addition to six launches with a GDV of RM594.7 million in 2013. MARC views PJH's shift in business strategy would expose the group to increased market risk, particularly in view of the prevailing property market slowdown.

In December 2014, PJH completed the construction of the Ministry of Transport and Road Transport Department and the Election Commission of Malaysia buildings and is currently undertaking the construction of the Malaysian Anti-Corruption Commission building. As per the concession agreements, upon the issuance of the Certificate of Practical Completion, the completed buildings will be subleased to the government for 25 years under the lease-and-sublease agreements between PJH and the FLC. These will add to the total sublease rentals from government buildings which stood at about RM1.3 billion per annum as at end-December 2014. 

MARC observes that rental income from the sublease of government buildings continued to account for a significant portion of PJH's consolidated revenue and pre-tax profit, although contribution from property sales has steadily increased. For the financial year ended December 31, 2013 (FY2013), lease rentals comprised 67.2% of total revenue followed by the sale of land and properties at 21.2% (FY2012:  77.2%; 8.2%). Total revenue and pre-tax profit rose year-on-year by 15.8% and 7.7% to about RM2.1 billion and RM799.2 million respectively in FY2013, largely due to higher lease rentals received from the government and higher sales of its commercial and residential properties launched during the year. However, group operating profit margin declined to 52.1% from 56.5% on higher construction costs. This notwithstanding, PJH's cash generating ability remained steady in FY2013 with cash flow from operations (CFO) standing at RM1.1 billion. The company increased its dividend payout to RM264.0 million in FY2013 from RM88.0 million in FY2012. Should PJH continue to increase its dividend payout, its strong liquidity position could be affected.

For nine months financial ended September 30, 2014 (9MFY2014) the group generated strong cash flow from operations (CFO) of about RM1.0 billion (9MFY2013: RM725.6 million). Its cash and cash equivalents, however, stood lower at about RM571.7 million (9MFY2013: RM1.4 billion) following the purchase of 1.3 acres in Ampang for RM82.5 million and a net debt repayment of RM1.1 billion during the period. As a result, the group's total borrowings have declined by 20.3% to about RM4.5 billion. PJH retains considerable financial flexibility with cash and bank balances of RM501.6 million and unutilised credit lines of about RM2.8 billion as at end-December 2014.

The stable ratings outlook assumes that PJH's credit profile, in particular its cash flows and financial flexibility would remain consistent with the assigned ratings.

Contacts: Jasmine Kua, +603-2082 2280/ jasmine@marc.com.my; Taufiq Kamal. +603-2082 2251/ taufiq@marc.com.my.

© Press Release 2015