RAM Ratings has reaffirmed the AAA(fg)/stable rating of Puncak Wangi Sdn Bhd's (the Company) Guaranteed Islamic Medium Term Notes (IMTN) Programme of up to RM200 million in nominal value (2014/2022). The enhanced rating reflects an irrevocable and unconditional Al-Kafalah facility from Danajamin Nasional Berhad (rated AAA/stable/P1 by RAM). The financial guarantee enhances the credit standing of the IMTN beyond Puncak Wangi's credit profile.
Excluding the guarantee, Puncak Wangi is exposed to a degree of construction risk given its undertaking to develop a 32-storey office tower (the Project) for Celcom Axiata Berhad (Celcom). In this regard, the construction has been plagued by delays; construction progress only stood at 29.72% as at end-October 2015, after more than 2 years. Based on the Agreement To Build and Lease (ATBL) with Celcom, Puncak Wangi has up to 43 months to complete construction (inclusive of a 3-month period when liquidated and ascertained damages are payable), failing which the said agreement can be terminated. On a more positive note, we understand that Puncak Wangi is likely to be granted an additional 2 months of construction time by Celcom. Nonetheless, we caution that any significant delay in the completion of the Project will impair Puncak Wangi's debt-servicing ability in the absence of support from its parents, Malaysian Resources Corporation Berhad.
Meanwhile, Puncak Wangi is expected to be highly leveraged as the Project is largely debt-funded. The Company's gearing ratio is projected to breach 4 times once all borrowings are fully drawn down in 2016. Its operating cashflow debt coverage ratio is expected to hover around 0.06 times upon commencement of the lease and throughout the tenure of the IMTN. Furthermore, the Company's ability to meet the bullet repayments on the IMTN and other borrowings hinges on the disposal of the office tower. Should the disposal fail to materialise, these borrowings would have to be refinanced.
The Company's key strengths are anchored by the predictable revenue from Celcom - a strong counterparty - and the Project's strategic location. Upon the execution of the lease agreement, the Company will enjoy stable and predictable lease rental income for 15-21 years. While Celcom has the option of prematurely terminating the lease agreement, such an event is deemed unlikely as it would need to pay in full all lease rentals for the remaining tenure upon termination of the lease agreement.
Puncak Wangi is wholly owned by MRCB, with the sole objective of undertaking the construction of the office tower, which is situated in the commercial hub of Petaling Jaya. The building marks the first phase of an RM11 billion large-scale project developed by MRCB, known as PJ Sentral Garden City.
Media contact
Jason Tan
(603) 7628 1030
jasontan@ram.com.my
© Press Release 2015
